ANNUAL REPORT
2022
2
Instem has over 700
customers with its
blue chip customer
base consisting
of the leading
pharmaceutical,
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.
7 0 0
A n n u a l R e p o r t
3
HIGHLIGHTS
6
CHAIRMAN’S STATEMENT
8
STRATEGIC REPORT
10
BOARD OF DIRECTORS
28
CORPORATE GOVERNANCE STATEMENT
30
DIRECTORS’ REMUNERATION REPORT
34
DIRECTORS’ REPORT
36
DIRECTORS’ RESPONSIBILITY STATEMENT
39
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF INSTEM PLC
40
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
46
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
47
COMPANY STATEMENT OF FINANCIAL POSITION
48
CONSOLIDATED STATEMENT OF CASH FLOWS
49
COMPANY STATEMENT OF CASH FLOWS
50
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
51
COMPANY STATEMENT OF CHANGES IN EQUITY
52
ACCOUNTING POLICIES
53
NOTES TO THE FINANCIAL STATEMENTS
68
DIRECTORS AND ADVISORS
117
CONTENTS
4
We 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 .
5
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 www.instem.com.
6
F I N A N C I A L H I G H L I G H T S
•
Total Group revenues increased 28% to £58.9m
(2021: £46.0m)
•
Software as a Service (“SaaS”) revenues
increased by 41% to £13.7m (2021: £9.7m)
•
Recurring software revenues (annual support
and SaaS) increased 43% to £34.5m (2021:
£24.1m), 59% of total revenue (2021: 52%)
•
Constant currency revenue growth was 20%
•
Adjusted EBITDA* increased 32% to £10.9m
(2021: £8.3m), representing an adjusted EBITDA
margin of 18.4% (2021: 17.9%)
•
Reported profit before tax of £5.5m (2021: £3.0m)
•
Adjusted profit before tax** of £8.2m (2021: £5.9m,
as restated)
•
Fully diluted earnings per share of 19.8p (2021:
7.4p)
•
Adjusted fully diluted earnings per share** of 31.3p
(2021: 20.4p, as restated)
•
Net cash generated from operations of £9.9m
(2021: £10.3m)
•
Cash balance as at 31 December 2022 of £14.0m
(2021: £15.0m) – after making deferred and
contingent payments of £5.4m in 2022 in relation
to the acquisitions made during 2021
For an explanation of the alternative performance
measures in the report, please refer to page 23.
"The post period-end launch of the Centrus product suite further enhances our
In Silico portfolio. This is an integral part of our long-term growth strategy
and a significant area of planned investment for us over the next 12 months
or so, reflecting broader market trends and growing demand for data insight
leveraging computational and artificial intelligence based solutions."
O P E R AT I O N A L H I G H L I G H T S
•
First full-year contributions from the three
acquisitions
completed
during
2021,
all
successfully integrated and earn-outs targets met
in full: The Edge Software Consultancy Ltd (“The
Edge”), d-Wise Technologies Inc (“d-Wise”), and
PDS Pathology Data Systems Ltd (“PDS”) (the
"Acquisitions")
•
Won largest ever contract with long-term client
•
$12m five-year agreement with global CRO,
lead client for new Aspire software solution
•
Significant future SaaS revenue potential
•
Contract extension with leading contract research
organisation (“CRO”) worth c.$1.4m
•
For over 900 additional users of the Group’s
Provantis non-clinical study management
platform– reflects strong underlying industry
R&D activity
•
Sales price increases successfully fed through to
customers to mitigate inflationary cost pressures
•
New banking facility finalised with HSBC of up to
£20m, £10m of which is committed
P O S T P E R I O D - E N D H I G H L I G H T S
•
ToxHub assets acquired and licensed from the
eTRANSAFE consortium and launch as part of new
solution suite Centrus®, enhancing In Silico revenue
streams and reach. Significant planned investment
and future growth potential - announced 15 May
2023.
•
Large
contract
renewal/expansion
for
the
US National Toxicology Program, including
incremental long-term SaaS income and In silico
technology - announced 11 May 2023.
•
Diversified the Board with the appointment of
Mary Dolson as an independent non-executive
director and strengthened the Executive team,
with the appointment of Eve Leconte, Chief People
& Culture Officer and Mark Poggi, Executive Vice
President Global Sales.
H I G H L I G H T S
*Earnings before interest, tax, depreciation, amortisation,
impairment of goodwill and non-recurring items.
**After adjusting for the effect of foreign currency exchange
and the unwinding of the finance liability included in finance
income/(costs), non-recurring items, impairment of goodwill plus
amortisation of intangibles on acquisitions.
7
This was another strong period for the Company with
continued growth in routes to market and higher
future visibility SaaS revenues. The enlarged Group
added a number of contracts from existing and new
clients, benefiting from the Acquisitions made during
2021, while the core product suite and strong market
backdrop continued to underpin organic growth.
New contracts won during the Period provide further
validation of our market position while our software
suite also provides a firm foundation from which the
Group can continue to evolve. The long-term nature
of our contracts, combined with our growing range of
solutions, underpin the Board’s continued confidence
in our ability to deliver future success.
Notwithstanding wider concerns around the funding
environment for drug discovery and development, we
have seen no evidence of slowdown to date and our
focus remains strong, and our focus remains on further
broadening our portfolio of products and solutions that
are attractive across the spectrum. This will continue
to drive value while demonstrating the strength of our
proposition.
Looking forward, we have a strong order book, and
the Company is well placed to benefit from industry
consolidation as well as continued loyalty from existing
clients. We have rationalised the non-core elements of
our portfolio and positioned ourselves to benefit from
increased cross selling, to win and service customer
contracts of all sizes and we look forward to building
on the strong start to trading during the current year.
The post period-end launch of the Centrus product
suite further enhances our In Silico portfolio. This is
an integral part of our long-term growth strategy and
a significant area of planned investment for us over
the next 12 months or so, reflecting broader market
trends and growing demand for data insight leveraging
computational
and
artificial
intelligence
based
solutions. We will continue to focus on organic and,
where appropriate, acquisitive growth opportunities
as we build out high-margin revenue lines while
delivering on our commitment to help our clients bring
their life enhancing products to market faster.
P J Reason
Chief Executive
8
This was a highly successful and strategically very
important year for the business, with concentration on
two main activities: to fully complete the integration
of the three companies acquired in 2021; then to
ensure that the resultant consolidated business was
ideally positioned to commence the next phase of its
development in 2023 and beyond.
Being the first full year to benefit from the Acquisitions,
as expected, the results were positively impacted by
the greater solution suite and routes to market now in
place. This transformation of the business has not only
increased the scalability and reach of our operations
but has improved the Group’s ability to win larger
contracts and attract opportunities that were not
previously available.
Strategically, we aim to ensure that our solutions enable
a shortening of the time taken for drugs to come to
market and that we have an increasing number of
touchpoints across the drug discovery and development
lifecycle.
F I N A N C I A L P E R F O R M A N C E
All parts of the business benefited from the extension
of our product range, which is becoming increasingly
relevant to a wider cross section of customers.
Furthermore, our ability to provide a growing number
of solutions has enabled us to increase cross-selling
as well as to add new customers that were previously
outside of our reach.
During the Period we were able to pass on essential
price increases to customers, which helped to mitigate
the global inflationary pressures now being experienced
by all businesses. Importantly, we also benefited from
a further change in our revenue mix, with additional,
higher margin and visibility SaaS revenue streams from
existing and new clients.
The performance during the Period was aligned with
management expectations post the completion of the
Acquisitions with notable progress on a number of key
metrics. In particular, increasing levels of SaaS-driven
business and strong client retention rates continue to
be cornerstone objectives.
•
SaaS-based revenues grew 41% to £13.7m
•
Total recurring revenues grew 43% to £34.5m
•
Recurring revenue retention rate >98%
•
Total Group revenues increased 28% to £58.9m
•
Adjusted EBITDA grew 32% to £10.9m
•
Net cash generated from operations of £9.9m
L O O K I N G F O R WA R D
Following a strategic review of our operations and
opportunities the next phase of the development of
the business will be based on the achievement and
maintenance of a growing portfolio of ‘world leading
life science workflow and data solutions.’ These are
grouped into three market focussed sectors.
STUDY MANAGEMENT
This sector has historically been the bedrock of the
overall business. The products and services of the
PDS acquisition have now been merged with the
equivalent pre-existing Instem products and services.
Consequently, we are now the clear market leader in the
pre-clinical study management market. In addition,
we have now broadened our study management scope
into the discovery phase of pharma R&D through the
acquisition of The Edge.
CLINICAL TRIAL ACCELERATION
Solutions for clinical trial acceleration now provide
an important opportunity for the Company. This was
the principle market focus of the d-Wise business. We
believe that, this, combined with the resources and
market reach of Instem, will significantly leverage the
potential in this area.
We have already seen these benefits, with the Company,
in September 2022, winning its largest contract to date
– worth $12m over five years.
IN SILICO/DATA SCIENCE
Artificial Intelligence (“AI”) is now one of the most
exciting supporting technology areas in Pharma R&D,
with its potential to generate significant improvements
both in cost and timescale for new product development.
We separately announced today, 15 May 2023, that
Instem is taking on responsibility for the management
and further enhancement of the ‘ToxHub’ database
and software platform. ToxHub was created by
e-TRANSAFE (a consortium of global pharma
companies, universities and technology companies,
supported by EU grant funding) and has benefited
from c.€41m investment to date.
ToxHub has become a component of recently launched
solution suite Centrus. Maximising the potential for
this new solution suite is strategically important and
now a major focus of investment for the Company.
Initially Centrus will provide an exciting axis for further
growth of our existing In Silico solutions. However, it
also sets the stall for the next stage of the Company’s
development, which will include an increased focus on
In Silico solutions.
C H A I R M A N ' S S TAT E M E N T
9
B O A R D C H A N G E S
Post-period end, we were delighted to welcome Mary
Dolson as an Independent Non-Executive Director to
the Board and Chair of the Audit Committee. Mary
also joined as a member of the Remuneration and
Nomination Committees. Mary is an expert advisor
on regulatory, financial and accounting compliance
issues, with extensive experience advising businesses
in the pharmaceutical, biotech and life science sectors.
She is an experienced specialist in taking companies
through periods of change, from start-up to venture
capital investments to public offerings. Upon Mary’s
appointment, membership of the Company’s audit,
remuneration and nominations committees was revised
accordingly and the Company will continue to review
membership of the various committees periodically in
line with good governance practice.
Following Mary’s appointment David Sherwin, Non-
Executive Director, stepped down from the Board
effective 31 January 2023. We would like to thank
David for his support and guidance during nearly 50
years at Instem.
I N S U M M A R Y
Increasing levels of SaaS-driven business and strong
client retention rates continue to the be cornerstone
of our model. We will continue to build on the fact
that our solutions remain critical in shortening the
time taken for drugs to come to market, resulting in
significant revenue growth for our blue-chip client
base as they provide life changing new products for
consumers world-wide.
We remain focused on organic revenue growth, margin
improvement and accretive M&A and believe that the
Company is extremely well placed to deliver further
success. The performance during the Period is a strong
reflection of the hard work across all parts of the
business and the foundations we now have in place are
expected to underpin material upside opportunities.
D Gare
Non-Executive Chairman
1 0
S T R AT E G I C D E V E L O P M E N T
In 2022 we stated our clear intention to make material
progress in integrating the data from our broad
portfolio of market leading applications to deliver
compelling new capabilities to the market and are
delighted that post-period end we completed the
transfer of eTRANSAFE’s ToxHub application to
Instem, announced 15 May 2023.
We are very excited about the potential of our expanded
In Silico and Translation Science (“ISTS”) business unit,
with our new Centrus™ solution suite incorporating:
•
the acquired ToxHub technology
•
our previous In Silico solutions
•
the
Clinical
Trial
Transparency
solutions
(previously within our Clinical Trial Acceleration
business unit)
•
the emerging opportunities to leverage the SEND
information assets that are rapidly growing within
pharmaceutical companies and contract research
organisations around the world.
The Group’s focus remains on helping clients to radically
reduce the cost and time of life sciences research and
development, with In Silico alternatives to traditional
client experimental processes representing a significant
opportunity. Instem offers a range of solutions including
predictive data analytics, simulation and modelling that
provide clients with services from early drug discovery
to late-stage clinical trials and, while already leveraging
machine learning and AI technologies, there is much
more we can do in these areas.
With our increased focus on ISTS and a clear objective
to optimize our clients R&D activities, we decided to
dispose of our Regulatory Information Management
“RIM” software business and this transaction completed
post period end. Most of our RIM revenue since the
acquisition of Samarind in 2016 has been in support of
our clients’ post-marketing activities, as they launched
their regulated products around the world. The
opportunity that we envisaged to build on our strength
in the medical devices niche was constrained by slower
introduction of helpful regulatory changes and a
medical devices market that was one of few that Instem
targets that was negatively impacted by the Covid
pandemic. We believe that Ennov, a competitor in the
RIM market and acquirer of our RIM business, will
be a good home for a small team of dedicated former
Instem staff and our RIM clients. RIM represented less
than 2% of total revenue in 2022.
RIM was part of our Regulatory Solutions business
unit, alongside our much larger SEND related business.
Having moved the responsibility for solutions that
leverage large volumes of SEND studies for insight
generation to ISTS, we have moved our SEND creation
software and services into our Study Management
business unit. The clients in these areas and the
workflow technology applications overlap significantly;
together they provide greater opportunity to optimize
efficiency and effectiveness for Instem and our clients.
As 2022 was the first year that incorporated full
contributions from the Acquisitions made during
2021, the results reflect the benefits of scale. With an
enhanced solution suite servicing a growing number of
touchpoints across the drug discovery and development
lifecycle the Company won multiple new contracts and
clients, which further enhanced SaaS revenue streams
in particular.
Organic growth remained strong, with retention of
recurring SaaS and Annual Support revenue once
again ahead of the Company’s 98% key performance
indicator and new business win rates confirming
market leadership across its broad portfolio.
The Company has created a strong market position
and substantial recurring revenues through helping
our clients orchestrate and automate their study
workflows. We are building on this firm foundation
with an increasing focus on the higher growth areas
in our portfolio, particularly the ISTS solutions that
contribute across the entire R&D value chain from
drug discovery to late-stage clinical trials and beyond.
The industry recognises and is investing in advanced
information technologies, such as AI and other data-
centric solutions, to both lower the cost and accelerate
its drug development activities. Our ISTS technology,
plus our deep understanding of the high volumes
of complex data, collected through our workflow
solutions over several decades in this industry, leave
us well-positioned to drive forward both current and
innovative new solutions.
M A R K E T R E V I E W
The market backdrop continues to be favourable
for the Group, with 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.
S T R AT E G I C R E P O R T
1 1
In the pharmaceutical industry, which represents the
largest proportion of Instem's revenue, we refer again
to the Pharma R&D Annual Review, the 2023 version
of which was released by Pharma Intelligence in April
2023. This report shows that the industry grew strongly
in the last 12 months with a 5.9% increase (2021: 8.2%)
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.
B U S I N E S S P E R F O R M A N C E
STUDY MANAGEMENT
Performance here remained strong with revenue
growth of 27%, compared with prior period growth
of 35%, with both of these years benefiting from the
Acquisitions in 2021 and reflecting the continuing
growth in non-clinical research and development, with
the number of drugs in this stage of development up
4.9% (2021: 11%). In December 2022 the Company
announced that it had entered into a contract extension
worth c.$1.4m for over 900 additional users of the
Provantis non-clinical study management platform
with an existing leading publicly traded global CRO,
highlighting the continued strength of its offering,
client relationships and underlying market.
The continual functional and technological evolution
of the study management portfolio, which has been a
mainstay of the business for many years, resulted in a
number of new business wins. New product versions
helped to maintain high levels of client retention and
to support the ongoing transition of client deployments
from on-premise to Instem’s SaaS solution. With CRO
consolidation a significant feature over the last few
years, it is very encouraging that clients have invariably
chosen to consolidate on Instem’s Provantis software
when companies combining, through merger or
acquisition, look to harmonize on a single solution,
rather than retain competing study management
products. In total, over 3,000 additional Provantis users
were licensed in 2022.
IN SILICO AND TRANSLATIONAL SCIENCE
Instem’s In Silico and Translational Science solutions
enable organizations around the world to unlock critical
biomedical intelligence contained in both public and
proprietary data resources. Insights, generated from
information produced across the R&D continuum, are
used to support operational efficiencies and scientific
advances throughout discovery, development and
clinical practice.
In November 2022 the Company announced the
release of the latest edition of its Leadscope Model
Applier Computational Toxicology software solution,
and significant improvements were also made during
2022 to the KnowledgeScan Target Safety Assessment
(TSA) platform. Enhancements to these AI-enabled
solutions, used for the assessment of chemical and
biological mechanisms, support client demand for the
combined benefits of both tools. Clients license the
technology on a project or enterprise basis, or access
it through Instem’s innovative, technology enabled
services. Our ‘translational science’ capability has also
been recently enhanced by the addition of products
and services in clinical trial transparency, where clients
are provided access to anonymised clinical trial data
for regulatory submission and secondary use.
A growing demand for reliable alternatives to
traditional testing methods and particularly animal-
based studies in pharmaceutical development was a
key factor in the Company adding the ToxHub suite of
products post period end, which has been combined
with our existing In Silico solutions as part of a new
Centrus solution suite. Instem’s highly successful,
long-term collaborations with the US Food & Drug
Administration and our role orchestrating large scale
industry initiatives, such as the In Silico Protocols
project, create an excellent framework for ongoing
collaboration with the eTRANSAFE Consortium
members, who jointly specified and invested in the
creation of ToxHub. Centrus is expected to provide a
spring board for accelerated ISTS revenue growth.
REGULATORY SOLUTIONS
The Regulatory Solutions business unit comprised
our SEND related software and technology enabled
outsourced services, together with the Samarind
RMS RIM software suite. In the highly competitive
and challenging RIM market revenue declined 7%
to c.£1.2m. Conversely, our SEND business grew
by 24% to £10.8m. Every drug company is required
to submit non-clinical data in SEND format to the
FDA (Food and Drug Administration), as part of the
process for testing and getting approval for each new
drug. The combination of increased numbers of drugs
in development and SEND being extended to cover a
broader range of study types, provided a solid platform
for continued growth.
Having acquired PDS in September 2021, a competitor
in the SEND software and services market, we were
able to reallocate some of our industry experts to
further investigate the opportunity to generate
insight from our clients’ rapidly growing SEND
information repositories. Post period end this work
has now transitioned to our ISTS business unit and
our technology and services for SEND creation have
become part of Study Management. As a consequence
of these changes, Regulatory Solutions will no longer
be reported independently.
1 2
CLINICAL TRIAL ACCELERATION SOLUTIONS
Instem plays a key role in the acceleration of analysis
and tabulation activities for late-stage clinical trials
through its Statistical Computing Environment (SCE)
consultancy and solutions. Instem is acknowledged
as an authority in the design, implementation and
optimisation of SCEs for the biggest clinical trials
organisations to the new entrants and innovative
biotechs advancing novel drugs. The Company’s
solutions for late-stage clinical trials are designed to
expand as customer needs grow and mature, providing
essential scalability to these organisations. At the
same time, Instem's SCE operating platforms provide
sponsors and CROs an essential transformational
bridge to cloud computing and the benefits of
automation through AI and a wide array of open
source and cloud-native technologies. SCE solutions
from Instem open a gateway for organisations to access
a new value space in computing technology that can be
leveraged to advance data science and accelerate drug
development programs.
Significant new business wins included the largest
ever contract win for the Company – worth in excess
of $12m over five years. This contract, provides over
2,000 users worldwide at an existing CRO client, access
to Instem’s new Aspire™ SCE software solution. Aspire
is a cloud-based SaaS solution targeting the largest
pharma and CROs in the world and is another example
of the company's SaaS growth strategy. For this client,
Aspire will be deployed on the Amazon Web Services
cloud platform. With the focus on Aspire product sales
and this key customer launch in Q4 2023, the volume
of custom SCE development consulting projects has
predictably dropped. Aspire is anticipated to drive
value for clients by accelerating SCE deployment
timelines, reducing client modernization costs, while
increasing recurring revenue and profitability of this
business area.
Instem continued to provide productised statistical
computing environments for small to mid-sized
pharma companies and CROs with a steady growth in
new clients and annual recurring revenue.
S T R E N G T H E N E D E X E C U T I V E
M A N A G E M E N T T E A M
In addition to the various Board changes, we welcomed
Mark Poggi to the Executive Team, joining as Executive
Vice President Global Sales. Mark previously worked
at CAS, a 1,200 employee subsidiary of the American
Chemical Society, where he had an international team
of around 85 people, over 3x the number he will initially
lead at Instem, and responsibility for approximately
~$190m in annual sales. Additionally, Eve Leconte has
been promoted to join the Executive Team as Chief
People & Culture Officer.
Finally, John Alarcon was appointed Vice President
of Strategic Partnerships and Vice President of US
Finance. John joined Instem on a contract basis in
2019 and led the buy-side due diligence, modelling,
and integration efforts on the d-Wise acquisition,
and supported on those of The Edge and PDS. John
was also Interim Controller for Instem's Clinical Trial
Acceleration business unit.
E N V I R O N M E N TA L , S O C I A L A N D
G O V E R N A N C E ( E S G )
Mission and Vision Statement
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 well with many of
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
reliance on animal-based testing, with a strong
industry, regulatory and societal desire to only use
animals when alternative methods are not sufficient to
assess potential risk.
As part of the acquisition integration process, in 2022
the Group introduced a new vision and values for
the new One Instem. The Group’s vision is the future
transformed for the benefit of everyone, with intelligent
solutions empowering collaboration and life enhancing
science.
The Groups values which were introduced and
reinforced during 2022 are:
•
We are a community that thrives together
•
We are bold, creative and curious
•
We are optimistic and love what we do
•
We are inspired to deliver value
The Group’s vision and values have an important role in
strategy development. They help to shape the Group’s
culture and to inform near and longer-term objectives.
The global events over the last three years have
highlighted more than ever the need for businesses to
S T R AT E G I C R E P O R T ( C O N T I N U E D )
1 3
operate in a socially responsible and environmentally
sustainable way and to look after their staff by providing
a safe operating environment.
As the Group expands, it has formalised its efforts
in Environmental, Social and Governance (ESG),
and has established an ESG Committee, represented
by a diversity of colleagues from across the Group.
The Committee has focused on key environmental
aspects and, in light of the global pandemic, charitable
activities.
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
for 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.
The Group received a credible B rating for its ESG
evaluation score from Integrum ESG (“Integrum”) in
October 2022. The Group’s score was determined by a
combination of sustainability and governance scores as
shown on the graph below.
ENVIRONMENT
Our Environmental impact
As a software and services solutions business, Instem’s
activities do not involve any energy-intensive processes
or generate significant waste. Nonetheless, Instem is
committed to reducing its environmental impact and
is developing an environmental strategy across the
group, with the objective of ensuring that the Group
minimises its impact on the environment as part of
its business activities. This will also build on what the
business has achieved so far, embracing new remote,
flexible and collaborative ways of working across a
simplified and reduced leased property portfolio,
significantly reducing commuting impacts. During
2022, two office leases expired in Guildford and Bury
St Edmunds, UK and were not renewed. Further details
are contained in Note 9.
Instem cares about the environment and fully supports,
and is committed to, the principles of promoting
good environmental practice and sustainability in the
conduct of its activities. The Group wishes to minimise
adverse effects on the environment. Our environmental
strategy is implemented through the ESG Committee
and
regulatory
requirements,
considering
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 COVID-19 pandemic brought with it a number of
operational changes and development of new Group-
wide strategies, including many that reduced our
environmental impact. These included significantly
reduced business travel.
The Group places great emphasis on its sustainability and ESG responsibilities and recognises the importance many
of its investors and other stakeholders place on this aspect of our business.
1 4
The Group:
•
complies with relevant environmental legislation
•
reduces waste, where practicable, re-using and
recycling consumables
•
promotes paperless processes using electronic
records
•
minimise the consumption of energy and resources
in the Group’s operations
•
where possible, increase the procurement of
environmentally friendly products.
Streamlined
energy
and
carbon
reporting
requirements (SECR) statement
The Group is committed to monitoring and reducing
its emissions year-on-year.
In accordance with the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013, we
report on greenhouse gas (“GHG”) emissions as part
of the strategic report. The Group is also aware of its
reporting obligations under The Companies (Directors’
Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2019, which implement
the government’s policy on Streamlined Energy and
Carbon Reporting (SECR).
As such, this year the Group is required to measure
and report on energy and carbon data across its
UK business, providing data to assess its overall
environmental impact for Scope 1 and 2.
In 2021 the Group reviewed the requirements of
the Environmental Reporting guidelines. For each
Company in the Group that qualifies as large their total
energy consumption was below 40MWh and therefore
the Group and Company was not required to prepare
an Energy and Carbon Report. In 2022 the Group met
the regulatory threshold and was therefore required to
report.
Scope 1 covers direct emissions from owned or
controlled sources. Scope 2 covers indirect emissions
from the generation of purchased electricity, steam,
heating and cooling consumed by the reporting
company report for strengthening its energy and
carbon reporting to meet these new requirements and
to increase the transparency with which environmental
impact is communicated to the Group’s stakeholders.
The Group has identified that the key intensity ratio,
an expression of the quantity of emissions in relation
to a quantifiable factor of business activity, which is in
tonnes of CO2e per the floor area of the occupied office
buildings and spaces. The carbon footprint during
2022 was 55 tCO2e the total floor size was 17 thousand
sq ft therefore the intensity ratio was 3.25 tCO2e per
1000 sqft.
The table below contains the carbon emissions for the
reporting period January to December 2022. The results
are in compliance with UK SECR legislation covering
energy use and associated greenhouse gas emissions
relating to gas, electricity and transport, intensity ratios
and energy efficiency actions.
Jan 2022 - Dec 2022
Total electricity use
168,722 kWh
Total gas use
16,088 kWh
Total transport fuel
8,084 kWh
Total energy from other fuels
0 kWh
Total energy use (all sources)
192,895 kWh
Total carbon emissions (electricity)
49 tCO2e
Total carbon emissions (gas)
3 tCO2e
Total carbon emissions (transport fuel)
3 tCO2e
Total carbon emissions (other sources)
0 tCO2e
Total carbon emissions
55 tCO2e
Total estate size
16,997 sqft
Carbon intensity ratio
3.25 kgCO2e per sqft
Scope
Source
Emissions (tCO2e)
Jan 2022 - Dec 2022
Scope 1
Total carbon emissions (gas)
3.5
Scope 2
Total carbon emissions
(electricity)
49.1
Scope 3
Total carbon emissions
(transport fuel)
2.6
Total
55.2
The Group is committed to responsible carbon
management and energy efficiency throughout the
organisation. The group recognises that climate
change is one of the most serious environmental
challenges currently threatening the global community
and understands the need to reduce greenhouse gas
emissions.
To increase businesses energy efficiency the Group
encourages the following policies
•
Hybrid working for staff
•
Reduced business travel
•
A reduced property portfolio
S T R AT E G I C R E P O R T ( C O N T I N U E D )
1 5
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
•
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. However, we have engaged a
third-party specialist who will be supporting us and
publishing a matrix of results in the 2023 annual report.
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 information technology equipment
used internally.
This year the Group received exemption for submitting
its annual Waste Electrical and Electronic Equipment
(WEEE) return because its equipment is designed only
for research and development use and only available
via business to business (B2B).
SOCIAL
As a supplier to the healthcare industry, Instem’s
technological innovations, software and services
solutions have a positive impact on society world-wide.
Employment Practices
People are at the heart of every stakeholder connection
that Instem builds. Instem’s staff are a key component
in the success of the business and in respect of this
Instem has a dedicated People and Culture team that
has implemented policies to support staff during their
employment.
As of 31 December 2022, Instem employed more than
500 people globally. The business ensures its actions,
working environment and policies prioritise employee
wellbeing. This includes reward and recognition
schemes, a flexible and considerate working approach
and a growing diversity and inclusion programme.
Instem believes that making positive changes within
the organisation contributes to a positive ripple effect
on society as a whole.
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 addresses Anti-Corruption, Anti-
Bribery and Corporate Criminal Offences through
HR policies and handbooks, ensuring staff understand
their responsibilities in relation to ethical matters.
Ethics and Code of Conduct training is also mandatory
training for all staff.
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
International Labour Organisation core labour
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 2022, 67% (2021: 66%) of employees
were located outside of the UK.
The Group recognises the importance of gender
diversity on its Board and within senior management.
In January 2023 the Group was delighted to announce
the appointment of Mary Dolson as an independent
Non-Executive Director and chair of the Audit
Committee and the appointment of Eve Leconte as
Chief People and Culture officer to the Executive Team.
1 6
S T R AT E G I C R E P O R T ( C O N T I N U E D )
As the Group has less than 250 employees for each
separate legal entity, 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 People & Culture 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 2022 staff survey demonstrated that 92%
(2021: 90%) of employees regard Instem as a great place
to work which is also reflected in the Group’s attrition
rate which is traditionally below the global average.
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. 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
provide 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
sustaining the “Wellbeing Wheel” to support staff
mental health.
•
introduction of the Instem Leadership Academy to
help develop senior employees and improve their
leadership skills.
Health and well-being for staff was promoted through
employee communication channels and subsidised
healthcare provision. The leadership team is encouraged
to make discussions on wellbeing a regular feature of
staff meetings.
The Group made LinkedIn Learning available to
every employee during 2022, providing free access to
expert courses on subjects relating to work or personal
development topics.
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, the homeworking
policy which was introduced in 2021 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.
Share scheme
The Group is a strong believer that having an effective
employee share ownership programme helps to align
employee interests with shareholders and continues
to provide an effective tool in attracting, retaining and
motivating employees. In 2020, the Group launched
an annual share option award scheme to all employees
which are subject to continued employment at the
point of options vesting after three years, with the first
vesting point arising in April 2023.
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.
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
1 7
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
to
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.
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.
This year, the Instem Charity Committee grew to
seven members representing the UK, India, and US.
The Instem Charitable Contribution Policy was also
published which defines how the Group will financially
support charitable causes that align with the company
mission, vision, and values.
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 MIND – Mental Health, East Cheshire
Hospice, Cancer Research UK, Boston Marathon
Jimmy Fund, Community Food Bank of New
Jersey, Last Night a DJ Saved My Life / Adobe
Junior School, Lichfield City of Sanctuary, Lullaby
Trust, UAGTCA Kids Track and Field, Connah’s
Quay High School / F1 in Schools competition.
•
Partnering with the INSPIRE Safety Pharmacology
Horizon 2020 project, which includes funding two
PhD students in France.
•
Plans to extend the Group’s graduate recruitment
scheme and establish a graduate apprenticeship
centre of excellence.
•
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.
•
Helping to make a positive difference in the lives
of children in Tanzania through involvement with
School in a Bag. Access to basic education is a
human right and is part of a route out of poverty.
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 January 2023, 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 allow 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.
1 8
S T R AT E G I C R E P O R T ( C O N T I N U E D )
S E C T I O N 1 7 2 S TAT E M E N T
The Board recognises the importance of setting high
standards of corporate governance and complying with
all legal requirements. In particular, the Directors are
required to act in accordance with a set of general duties
as detailed within section 172 of the UK Companies
Act 2006. These duties are summarised as follows;
A Director of a Company must act in a way they
consider, in good faith, would be most likely to
promote the success of the Group for the benefit of its
shareholders as a whole and, in doing so, have regard
(amongst other matters) to:
•
The likely consequences of any decisions in the
long-term
•
The interests of the Group’s employees
•
The need to foster the Group’s business relationships
with suppliers, customers and others
•
The impact of the Group’s operations on the
community and environment
•
The desirability of the Group to maintain a
reputation for high standards of business conduct;
and
•
The need to act fairly as between shareholders of
the Company.
In accordance with section 172 of the Companies
Act 2006 the Directors, collectively and individually,
confirm that during the year ended 31 December 2022
they acted in good faith and have upheld their ‘duty to
promote the success of the Group’ to the benefit of its
stakeholder groups.
Directors acknowledge the importance of forming
and retaining a constructive relationship with all
stakeholder groups. Effective engagement with
stakeholders enables the Board to ensure stakeholder
interests are considered when making decisions and
is crucial for achieving the long-term success of the
Group.
Instem identifies seven key stakeholder groups
associated with our business:
•
Employees
•
Clients
•
Shareholders
•
Partners
•
Communities in which we operate
•
Suppliers
•
Environment
The Board recognises its duty to consider the needs
and concerns of the Group’s key stakeholders during
its discussions and decision-making. The Board has
had regard to the importance of fostering relationships
with its stakeholders as set out below and also detailed
in the strategic report and corporate governance report
of this report. More information on how the Directors
have discharged their duties under section 172 of the
Companies Act 2006 is also available in the strategic
report on pages 18 to 20 and corporate governance
report on pages 30 to 33.
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.
The Board is fully committed to ensuring that the
opinions of employees across all regions and business
areas are regularly sought and factored into its decision-
making process. The Group has put in place extensive
measures to engage with its employees and these are
described in full in the ESG section within this report
on pages 15 to 17, including practical examples of
how these have been applied during the year. Through
these engagement activities the Board is able to gather
opinions and ideas from the wider workforce, identify
any communication gaps or common areas of concern
and address these through the Group’s activities.
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
1 9
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
input to strategy and operations, allowing us to ensure
that our products and services meet the needs of the
entire client (and prospect) community.
The Group is proactive in engaging directly with its
clients to monitor and continually improve its service
delivery and client satisfaction levels. 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.
In the event that any concerns are raised by clients, the
Group ensures that these are addressed swiftly and that
proactive engagement occurs to ensure ongoing high
standards of service delivery.
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.
The Group’s social media presence and activity
has increased and improved during the year. At
least daily or weekly updates are provided through
the Company’s corporate social media channels
(LinkedIn) and contain key updates. Finally during
the year, the Group’s marketing team has enhanced
its customer communications and the way in which
campaigns, product launches and solution migrations
are
communicated.
Targeted
and
personalised
communications are agreed between the Group’s
marketing team and customers’ account and service
delivery managers, to ensure that the right customers
are informed and guided through any changes which
may affect them.
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. 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 (AGM) 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.
Additionally, the Group’s annual report and accounts
is made available to all shareholders both online and
in hard copy where requested. All presentations and
announcements and other key shareholder information
is available on the investor section of the Group’s
website.
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.
The Group actively encourages feedback from the
Group’s partner firms on the quality of its services and
products to support continuous improvement.
2 0
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 lockdown but we have done so wherever possible,
for example we continued to pay our office cleaning
staff despite offices being closed.
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.
The Group is committed to building trusted
partnerships with the Group’s suppliers, which are
crucial to delivering many of our commitments.
The environment
As a provider of software solutions, the Group’s
operations have a relatively limited impact on the
environment. However, the Board is committed to
implementing measures that will result in incremental
improvements to the Group’s environmental impact,
such as minimising paper usage, considering the
environmental credentials of its office spaces and by
avoiding unnecessary travel and using video-based
meeting facilities where appropriate.
We do encourage efficient energy usage and recycling
in office. 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. For further details on this refer
to page 13 to 15.
Finally, the Directors of the Group must act in a way
they consider, in good faith, would be most likely to
promote the success of the Group for the benefit of its
shareholders as a whole and, in doing so, they have
regard (amongst other matters) to the below:
Maintaining a reputation for high standards of
business conduct
The Group is mindful that the continued growth and
success of the Group is dependent upon maintaining
high standards of business conduct, including:
•
the ability to successfully compete within the
market, to attract and retain clients, and to service
these clients to a high standard;
•
the ability to attract and retain high quality
employees;
•
the ability to attract investors and to meet their
expectations of good governance and sound
business conduct; and
•
the ability to meet the Group’s regulatory
obligations, and to meet the expectations of
relevant regulatory bodies.
This awareness underpins the formulation of the
Group’s strategy and is evident throughout the Board’s
decision making process.
Ensuring that members of the Company are treated
fairly
The Group ensures that the Group’s 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.
S T R AT E G I C R E P O R T ( C O N T I N U E D )
2 1
In addition, non-financial KPIs are periodically
reviewed and assessed, including customer and staff
satisfaction.
Instem’s revenue model consists of perpetual licence
income with annual support and maintenance
contracts, professional services, technology enabled
outsourced services fees, SaaS subscriptions and
consultancy services.
Total revenues increased by 28% to £58.9m (2021:
£46.0m) with constant currency revenue growth at 20%.
This includes full year revenue contributions from The
Edge, d-Wise and PDS, which were acquired in March,
April and September 2021 respectively. Recurring
revenue, comprising Support & Maintenance contracts
and SaaS subscriptions, increased during the year by
43% to £34.5m (2021: £24.1m). Recurring revenue as a
percentage of total revenue was 59% (2021: 52%). The
recurring revenue as a percentage of total revenue has
increased over the year primarily due to the change
of d-Wise revenue mix moving towards recurring
revenue instead of consulting services. Revenue from
technology enabled outsourced services increased to
£8.5m (2021: £6.4m).
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:
Year ended
31 Dec 2022
£000
Year ended
31 Dec 2021
£000
Change
Total revenue
58,880
46,017
28%
Recurring revenue1 *
34,473
24,082
43%
Annual Recurring revenue1
34,967
28,741
22%
Recurring revenue as a percentage of total revenue
59%
52%
700bps
Adjusted EBITDA1 **
10,863
8,250
32%
Adjusted EBITDA Margin %
18.4%
17.9%
50bps
Cash and cash equivalents
13,964
15,021
(7%)
Customer retention rate for recurring SaaS and Annual
Support revenue
>98%
98%
-
Operating profit after non-recurring items
5,593
4,098
36%
1 For an explanation of the alternative performance measure in the report, please refer to page 23.
* Recurring revenue includes Annual Support fees and SaaS subscription fees.
** Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and non-recurring items.
Operating expenses excluding the non-recurring items
increased by 27% in line with revenue reflecting the full
year cost of the 2021 acquisitions, ongoing investment
in operational teams and the increase in the rate of
inflation, primarily in salaries.
Adjusted earnings before interest, tax, depreciation,
amortisation, impairment of goodwill and non-
recurring items (Adjusted EBITDA) increased by 32%
to £10.9m (2021: £8.3m). For this measure of earnings,
the margin as a percentage of revenue increased in
the period to 18.4% from 17.9% in 2021, as the Group
managed to increase the revenue in line with the salary
inflation.
Non-recurring costs in the period were £1.2m (2021:
£1.3m), consisting of £0.1m for legal expenses associated
with an historical contract dispute and an additional
provision of €1.2m (£1.0m) which relates to the full
and final settlement of the dispute that originally arose
in 2017. The historical contract dispute was settled in
2022 for €1.5m (£1.3m). The non-recurring costs also
include acquisition costs of £0.08m (2021: £1.0m) in
respect of the earn out consideration of the Edge and
d-Wise.
2 2
S T R AT E G I C R E P O R T ( C O N T I N U E D )
Non-recurring income of €0.5m (£0.4m) relates to an
insurance payment in relation to the historical contract
dispute, refer to note 4 for non-recurring items.
The reported profit before tax for the year was £5.5m
(2021: profit of £3.0m). The calculation of the adjusted
profit before tax was changed in 2022 to include two
additional components; the effect of foreign currency
exchange and the unwinding of the financial liability
included in finance income/(costs). Those two
components have been included to better reflect
the normalised, ongoing operations of the Group.
Adjusted profit before tax (i.e, adjusting for the effect
of foreign currency exchange and the unwinding of the
finance liability included in finance income/(costs),
non-recurring items, impairment of goodwill and
amortisation of intangibles arising on acquisitions) was
£8.2m (2021: £5.9m, as restated).
The total income tax charge in the year of £0.78m
(2021: £1.3m) is an effective tax rate of 14.2% (2021:
43.8%). The decrease in the tax charge is mainly due to
the benefit from deferred tax of the UK corporation tax
losses together with the US tax benefit available on the
d-Wise acquisition. In the UK, the Group continues
to receive additional tax relief on its research and
development expenditure.
The Group continues to maintain its investment in its
product portfolio. Research and development costs
incurred during the year were £7.5m (2021: £4.9m), of
which £3.0m (2021: £2.2m) was capitalised. The Group
has a development process in place and is committed to
ensure its own technology continues to evolve to meet
client needs.
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 primary currency that
exposed the Group to foreign currency risk in 2022
were the US dollar transactions. In 2022, the revenue
and Adjusted EBITDA growth on a constant currency
basis, excluding the foreign exchange exposure was,
20% and 19% respectively. The foreign exchange gain
recorded during 2022 was £0.93m (2021: loss £0.04m),
which is composed of realised and unrealised gains/
losses.
Basic and diluted earnings per share calculated on an
adjusted basis were 32.8p and 31.3p respectively (2021:
21.5p basic and 20.4p diluted, as restated). The reported
basic and diluted earnings per share were 20.8p and
19.8p respectively (2021: 7.8p basic and 7.4p diluted).
The Group cash generated from operations for the year
was £9.9m (2021: £10.3m), a small reduction from
prior year primarily due to working capital movement
and the settlement of the historical contract dispute.
The deferred and contingent consideration payments
of £5.4m which related to the 2021 acquisitions were
part of the net cash used in financing activities. The
net cash used in investing activities includes £3.0m
(2021: £2.2m) from the capitalisation of software
development. As a result, of the above the gross cash
balance decreased from £15.0m at 31 December 2021
to £14.0m at 31 December 2022. In addition to its
organic cash reserves the Group has access to an HSBC
debt facility of up to £20m, which was unutilised at the
year end.
The remaining financial obligations associated with The
Edge and d-Wise acquisitions for 2023 are deferred and
contingent consideration payments of £3.6m and £2.2m
respectively in cash. The contingent consideration
provision reflected management’s estimate that the
entities would achieve their profitability targets and
that the full amount of contingent consideration would
be paid. This profitability target was confirmed in the
period.
Goodwill included in intangible assets reduced from
31 December 2021 to 31 December 2022 due to an
impairment loss of £0.11m on Samarind’s goodwill
realised on disposal. Offsetting this there was an
increase in d-Wise goodwill of £0.05m (US$0.06m)
due to a change in the contingent consideration paid
(note 12).
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 (note
25).
On 31 December 2022, the IAS19 accounting pension
deficit was unchanged at £2.0m (2021: £2.0m). The
agreed Group cash contributions currently approximate
to £0.6m per annum, payable through to September
2026. The deficit at the 2022 year-end of £2.0m (2021:
£2.0m) is represented by the fair value of assets of
£8.4m (2021: £14.0m) and the present value of funded
obligations of £10.4m (2021: £16.0m), after applying a
discount rate of 4.8% (2021: 1.9%).
Movements in share capital and the share premium,
merger and share based payment reserves reflect the
2 3
exercise of share options during the period, the fair
value of share options granted being charged to the
Statement of Comprehensive Income and the issue of
shares paid in lieu of cash as deferred consideration for
d-Wise. The share capital of Instem at 31 December
2022 was 22,704,308 ordinary shares of 10p each (note
27).
In line with previous periods and given our policy
of retaining cash within the business to capitalise on
available growth opportunities, the Board has not
recommended the payment of a dividend.
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:
2022
£000
2021
£000
Annual support fees
20,815
14,378
SaaS subscription and support fees
13,658
9,704
Recurring revenue
34,473
24,082
Licence fees
6,049
4,597
Professional services
3,229
3,651
Technology enabled outsourced services
8,496
6,378
Consultancy services
6,633
7,309
Total revenue
58,880
46,017
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.
2022
£000
2021
£000
Annual Recurring Revenue
34,967
28,741
Annual Recurring Revenue is the revenue that the Group is currently contracted to provide, for the next 12 months,
for software Annual Support fees and SaaS Subscription fees. The revenue is also adjusted with new or terminated
contracts that took place in the year.
2022
£000
2021
£000
EBITDA
10,056
7,769
Non recurring cost (see note 4)
1,208
1,286
Non recurring income (see note 4)
(401)
(805)
Adjusted EBITDA
10,863
8,250
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 4). 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.
2 4
S T R AT E G I C R E P O R T ( C O N T I N U E D )
2022
£000
2021
as re-stated
£000
2021
as originally reported
£000
Profit before tax
5,473
2,984
2,984
Amortisation of intangibles arising on acquisition
1,953
1,563
1,563
Non recurring cost (see note 4)
1,208
1,286
1,286
Non recurring income (see note 4)
(401)
(805)
(805)
Impairment of goodwill (note 12)
107
-
-
Intercompany foreign exchange (gain)/loss
-
-
(18)
Foreign currency exchange (gain)/ loss (note 5 and note 6)
(932)
44
-
Unwinding discount on deferred consideration (note 6)
771
867
-
Adjusted profit before tax
8,179
5,939
5,010
The calculation for the adjusted profit before tax was changed in 2022 compared with prior periods by including two
additional components, the effect of foreign currency exchange and the unwinding of the finance liability included in
finance income/(costs). Those two components have been included as adjustments as they do not affect the ongoing
operations of the Group.
Adjusted profit before tax is after adjusting for the effect of foreign currency exchange and the unwinding of the
finance liability included in finance income/(costs), non-recurring items, impairment of goofwill and amortisation
of intangibles arising 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.
2022
£000
2021
£000
Weighted average number of shares (000's)
23,686
22,719
Adjusted diluted earnings per share
31.3p
20.4p
Cash at bank
13,964
24,019
Bank overdraft
-
(8,998)
Cash balance
13,964
15,021
2 5
U P D AT 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 did
not affect the ongoing operations of the Group, was
settled in October 2022.
As previously announced, the Group created a provision
of £0.25m in 2017 and this was maintained in the 2021
financial statements. In 2022, the Group increased the
provision equal to the amount that the legal dispute
was settled of €1.48m (£1.3m), of which its insurer
agreed to contribute €0.45m (£0.4m) resulting in a net
payment due of approx. €1.0m (£0.9m).
P R I N C I PA L R I S K S A N D
U N C E R TA 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 the
impact of accounting or regulatory changes and/or
funding restrictions in the industry.
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 59% 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.
Market and economic conditions
Market and economic conditions are recognised as
principal risks in the current trading environment.
The risk is mitigated by the monitoring of trading
conditions and the constant search for ways to achieve
efficiencies in the business without impacting levels
of service. Additionally, the inflationary environment
is being closely monitored. The Group is able to
reduce the exposure in its client contracts with the
vast majority allowing for inflationary increases to be
applied to future fees.
The risk to the Group, as for most businesses, in regard
to the COVID-19 pandemic appears to have peaked
and we are not anticipating any material adverse impact
on future trading. The Group has coped well with the
COVID-19 pandemic, with staff working efficiently
from home and the majority of the business relatively
unaffected.
The Board considers the Group is relatively well
protected against significant customer risk due to the
Group’s diverse customer base. At the date of approval
of these financial statements the macro-economic
conditions remain unpredictable and as such remain
a risk to the business which the Board continues to
closely monitor.
Foreign currency risk
The Group operates internationally and is exposed to
foreign currency risk on transactions denominated in
a currency other than the functional currency and on
the translation of the statement of financial position
and statement of comprehensive income of foreign
operations into Sterling. The main currency giving
rise to this risk is US dollars. The Group mitigates the
foreign currency risk by having both cash inflows and
outflows in the relevant foreign currency due to local
revenue generation generally offset by a local cost base
that creates a natural hedge.
The Group 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
in other territories 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 £0.7m
(2021: £0.6m).
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 2022 year end the Group
had a maximum credit risk exposure of £18.3m (2021:
£14.9m).
The amounts presented in the statement of financial
position are net of impairment provisions.
2 6
S T R AT E G I C R E P O R T ( C O N T I N U E D )
Note 16 sets out the impairment provision for credit
losses on trade receivables and the ageing analysis of
overdue trade receivables. There were no impairment
losses recognised on other financial assets.
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 in 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.
The Group had positive gross cash reserves of £14.0m
at the end of the period, although £3.2m of the cash
was held in bank accounts in China, where it has been
traditionally harder to repatriate funds quickly.
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
With a strategy for growth, the Group ensures that
acquisitions are handled appropriately from the
outset. Acquiring differing businesses with differing
technologies, people, competencies and processes
creates risk to both customers and the products and
services being acquired plus the Group’s existing
operating model. Given the Group’s acquisition
strategy this is considered an ongoing risk. The Group
considers this risk split into three main areas with the
following mitigations in place:
•
Acquisition target risk – the risk that the Group
is unable to identify suitable acquisition targets.
This risk is managed by a combination of
internal resource dedicated to identifying targets
complemented by use of external advisors.
•
Acquisition integration risk – the risk that
completed acquisitions are not integrated into
the underlying business in an efficient or effective
way leading to potential loss of customers and
employees from the acquired business. The
risk is managed by detailed planning to ensure
acquisitions are integrated effectively.
•
Post-acquisition performance risk – the risk that
the acquired business may not perform as well
as expected or synergies may not be delivered as
planned. This has the potential to adversely impact
both cashflow and profits post acquisition.
Due diligence and integration planning help manage
this risk including the use of experts throughout the
acquisition process. The Group manages this risk
by regular reviews of the operational structure and
resource required to deliver to customers without
degrading service.
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
2 7
that these individuals are rewarded and developed
appropriately. If the Group is unable to attract and
retain suitably qualified personnel it is unlikely to meet
its growth objectives and stakeholder expectations.
The Group has a global People and Culture 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 considers staff
feedback through regular performance review. During
2020 the Group implemented an all-staff share scheme
for the first time and has made annual awards thereafter.
The options from the 2020 award were vested and
became exercisable in April 2023.
P O S T P E R I O D - E N D
For the material subsequent events refer to note 33,
as these have a bearing on the understanding of the
financial statements.
O U T L O O K
This was another strong period for the Company with
continued growth in routes to market and higher
future visibility SaaS revenues. The enlarged Group
added a number of contracts from existing and new
clients, benefiting from the Acquisitions made during
2021, while the core product suite and strong market
backdrop continued to underpin organic growth.
New contracts won during the Period provide further
validation of our market position while our software
suite also provides a firm foundation from which the
Group can continue to evolve. The long-term nature of
our relationships, combined with our growing range of
solutions, underpin the Board’s continued confidence
in our ability to deliver future success.
Notwithstanding wider concerns around the funding
environment for drug discovery and development, we
have seen no evidence of slowdown to date and our
focus remains on further broadening our portfolio
of products and solutions that are attractive across
the spectrum. This will continue to drive value while
demonstrating the strength of our proposition.
Looking forward, we have a strong order book, and
the Company is well placed to benefit from industry
consolidation as well as continued loyalty from existing
clients. We have rationalised the non-core elements of
our portfolio and positioned ourselves to benefit from
increased cross selling, to win and service customer
contracts of all sizes and we look forward to building
on the strong start to trading during the current year.
The post period-end launch of the Centrus product
suite further enhances our In Silico portfolio. This is
an integral part of our long-term growth strategy and
a significant area of planned investment for us over
the next 12 months or so, reflecting broader market
trends and growing demand for data insight leveraging
computational
and
artificial
intelligence
based
solutions. We will continue to focus on organic and,
where appropriate, acquisitive growth opportunities
as we build out high-margin revenue lines while
delivering on our commitment to help our clients bring
their life enhancing products to market faster.
P J Reason
Chief Executive
13 May 2023
2 8
D a v i d G a r e
Non-executive Chairman
David was a founder member
of the Company’s former
parent, Instem Limited, and
led the resulting businesses
through most of their history.
David successfully achieved
a succession of strategic
developments for Instem
Limited, including its sale to
Kratos Inc. in 1976, its MBO in
1983, its flotation on the USM
in 1984, its flotation on the
Official List in 1996, its public
to private and demerger in
1998 and the buyout of Instem
LSS Limited from Alchemy
Partners in 2002. Throughout,
David has concentrated
on value creation through
achievement of a strong market
position.
P h i l R e a s o n
Chief Executive Officer
Phil is an experienced chief
executive who has developed
a number of IT businesses in
the life sciences and nuclear
industries, both organically
and through acquisition.
Phil joined the former parent
Company, Instem Limited,
in 1982 and was appointed
Managing Director of the
Life Sciences division in 1995
and Chief Executive Officer
of Instem LSS Limited on the
demerger from Instem Limited.
Given the importance of the
North American market to
Instem’s organic and acquisitive
growth, Phil relocated from
the UK to the US in 2003 and
established a new headquarters
in the Philadelphia area. Phil
previously ran Instem Limited’s
Nuclear and Laboratory
Information Management
Systems integration businesses.
B O A R D O F D I R E C T O R S
N i g e l G o l d s m i t h
Chief Financial Officer
Nigel, who joined Instem
in November 2011, has a
wealth of experience in senior
financial roles, at both public
and private companies within
the pharmaceutical industry.
After qualifying as a Chartered
Accountant, Nigel spent over
nine years at KPMG prior to
moving into industry. Nigel
was Finance Director for
three years at AIM listed,
pharmaceutical and medical
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 9
M a r y D o l s o n
Non-executive Director
Mary is an expert advisor
on regulatory, financial and
accounting compliance issues,
with extensive experience
advising businesses in the
pharmaceutical, biotech
and life science sectors.
Most recently, Mary was
a Non-Executive Director
at Nuvelution Pharma Inc
(Boston, USA) between 2019
and 2021, where she consulted
as an expert in finance,
modelling, and risk across all
phases of the pharmaceutical
and biotech industry. Mary
has spent most of her career
in audit and served as a PwC
partner in London for over 20
years, where she became the
Global Lead on pharmaceutical
industry accounting and
reporting before retiring in
2018. Mary was a founding
member of the ‘Pharma Forum’,
an industry based International
Financial Reporting Standards
working group. Mary served as
a Non-Executive Committee
Member for the Financial
Reporting Review Panel (UK),
from 2011 until December 2020.
M i k e M c G o u n
Non-executive Director
Mike has a wealth of
management experience
within the IT industry. He
spent 10 years at IBM prior
to co-founding a successful
ComputerLand franchise
in 1984. In 1994, Mike
moved to SkillsGroup plc as
a main board director, with
responsibility for corporate
development and later as a
non-executive director. Mike
was founder and non-executive
Chairman of Tikit Group plc
prior to its disposal to BT plc
in 2012.
R i a z B a n d a l i
Non-executive Director
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.
3 0
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;
b. 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;
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 results together with
comparison of these against expectations. KPIs
assessed are both financial and non-financial.
A U D I T C O M M I T T E E
As of 31 December 2022, the Audit Committee
comprised 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.
In January 2023, Mary Dolson was appointed as
Independent Non-Executive Director to the Board and
Chair of the Audit Committee. David Sherwin, Non-
Executive Director, has announced his intention to
step down from the Board effective 31 January 2023.
In January 2023 the Audit Committee was revised and
comprises M Dolson (Chair), M F McGoun and R
Bandali.
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 once 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 the
external
auditor
including
considering
the
appointment and remuneration of the external
auditor and reviews and monitors the external
auditor’s independence and objectivity and the
effectiveness of the audit process;
c. 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;
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
ensure co-ordination between internal and
external auditor;
f.
reviews the Board's statement on internal reporting
systems and keeps the effectiveness of such systems
under review; and
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.
C O R P O R AT E G O V E R N A N C E S TAT E M E N T
3 1
R E M U N E R AT I O N C O M M I T T E E
As of 31 December 2022, the Remuneration Committee
comprised M F McGoun (Chairman), D Gare, D M
Sherwin and R Bandali, all of whom are non-executive
directors of the Group.
In January 2023 the Remuneration Committee was
revised and comprises R Bandali (Chairman), M F
McGoun and M Dolson.
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.
AT T E N D A N C E AT 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. In 2022, 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
6/6
1/1
1/1
1/1
N J Goldsmith
6/6
1/1
1/1
1/1
Non-Executive Directors
D Gare
6/6
1/1
1/1
1/1
D M Sherwin
6/6
1/1
1/1
1/1
M F McGoun
6/6
1/1
1/1
1/1
R Bandali
6/6
1/1
1/1
1/1
3 2
N O M I N AT I O N C O M M I T T E E
As of 31 December 2022, the Nomination Committee
comprised M F McGoun, D M Sherwin and R Bandali,
all of whom are non-executive directors of the Group.
In January 2023 the Remuneration Committee was
revised and comprises D Gare (Chairman), M F
McGoun, R Bandali and M Dolson.
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;
c. is responsible for identifying and nominating for
the approval of the Board, candidates to fill Board
vacancies as and when they arise; and
d. evaluates the balance of skills, knowledge and
experience on the Board before an appointment
is made and, in light of this evaluation, prepares a
description of the role and capabilities required for
a particular appointment.
The Chairman of the Nomination Committee
reports formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities.
The
Nomination
Committee
also
makes
recommendations to the Board concerning:
a. formulating plans for succession for both executive
and non-executive directors and in particular the
key roles of Chairman of the Board and Chief
Executive Officer;
b. membership of the Audit and Remuneration
Committees, in consultation with the chairmen of
those committees;
c. the re-appointment of any non-executive director
at the conclusion of their specified term of office
having given due regard to their performance and
ability to continue to contribute to the Board in
the light of the knowledge, skills and experience
required;
d. 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
f.
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.
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 legal or other independent
professional advice at the Group’s expense when
the Nomination Committee reasonably believes it
is necessary to do so; and
d. instruct external professional advisors to attend any
meeting at the Group’s expense if the Nomination
Committee considers this reasonably necessary
and appropriate.
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
C O R P O R AT E G O V E R N A N C E S TAT E M E N T ( C O N T I N U E D )
3 3
the due diligence phase and any areas of remediation
are included in the planning of the Integration process
post-acquisition.
During 2022, there was a high emphasis on
understanding the existing control environment
with the new acquisitions, identifying and reporting
the issues to the local management, assisting on
implementing the appropriate controls and integrating
with existing internal 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
Non-Executive Director
13 May 2023
3 4
D I R E C T O R S ’ R E M U N E R AT 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 AT 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 R Bandali, effective January 2023. 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 35. Details of share-based payment
are shown in note 10 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 AT 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 AT E D
A N N UA 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 £nil were
payable to executive directors in respect of the year
ended 31 December 2022 (2021: £47,000).
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.
3 5
D Gare, D M Sherwin M F McGoun and R Bandali each have a letter of appointment with a notice period of three
months. The emoluments paid or payable to directors in respect of the year ended 31 December 2022 were as follows:
Salary and Fees
Bonus
Benefits
Pension
2022 Total
2021 Total
Executives
P J Reason*
236
-
30
34
300
289
N J Goldsmith
145
-
12
9
166
161
Non-executives
D Gare
65
-
-
-
65
65
D M Sherwin
33
-
-
-
33
33
M F McGoun
40
-
-
-
40
40
R Bandali
36
-
-
-
36
3
Total
555
-
42
43
640
591
* The remuneration in respect of P J Reason is payable in US Dollars and translated at the average rates as disclosed on page 59.
The total remuneration paid in the year was USD 371,000 (2021: USD 396,500).
D I R E C T O R S ’ A N D E M P L O Y E E S ’ S H A R E O P T I O N S
Exercise price
(£)
Issue date
Held at 31
Dec 2021
Granted
during year
Exercised
during year
Lapsed
during year
Held at 31
Dec 2022
P J Reason
0.90
14/01/2013
23,429
23,429
Ordinary shares
Nil
22/02/2018
80,000
(80,000)
-
Nil
26/06/2020
76,000
76,000
Nil
16/04/2021
4,387
4,387
Nil
27/09/2021
25,000
25,000
Nil
02/03/2022
4,833
4,833
133,649
N J Goldsmith
1.76
07/02/2012
20,000
(20,000)
-
Ordinary shares
0.90
14/01/2013
15,000
15,000
0.10
29/07/2015
62,500
62,500
Nil
22/02/2018
80,000
80,000
Nil
26/06/2020
74,000
74,000
Nil
16/04/2021
3,031
3,031
Nil
27/09/2021
25,000
25,000
Nil
02/03/2022
2,165
2,165
261,696
Employees
0.90
14/01/2013
22,975
22,975
Ordinary shares
0.10
11/02/2015
40,584
40,584
0.10
29/07/2015
78,125
78,125
0.10
21/11/2015
25,258
25,528
0.10
27/05/2016
6,480
6,480
0.10
03/05/2017
7,500
(7,500)
-
Nil
22/02/2018
190,000
(110,000)
80,000
Nil
27/04/2020
106,525
(7,397)
99,128
Nil
06/05/2020
24,000
24,000
Nil
19/05/2020
219,000
219,000
Nil
22/03/2021
50,707
(3,000)
47,707
Nil
21/09/2021
289,000
(40,000)
249,000
Nil
02/03/2022
57,513
(3,735)
53,778
946,035
Total
1,548,501
64,511
(217,500)
(54,132)
1,341,380
Approved by the Board and signed on its behalf by:
M F McGoun
Non-Executive Director
13 May 2023
3 6
D i r e c t o r s ' R e p o r t
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.
3 7
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 2022.
Instem plc is a public limited company, incorporated
and domiciled in England, and quoted on AIM.
P R I N C I PA L A C T I V I T I E S
Instem is a leading supplier of IT applications to the
life sciences healthcare market, delivering compelling
solutions for data collection, management and analysis
across the R&D continuum. Instem applications are
in use by customers worldwide, meeting the rapidly
expanding needs of life science and healthcare
organisations for data-driven decision making leading
to safer, more effective products.
Instem's portfolio of software solutions increases client
productivity by automating study-related processes
while offering the unique ability to generate new
knowledge through the extraction and harmonisation
of actionable scientific information.
R E V I E W O F T H E B U S I N E S S
A detailed review of the development and performance
of the Group’s business during the year and its position
at the end of the year is set out in the Chairman’s
Statement and the Strategic Report on pages 8 to 27.
S T R AT 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 27 information required
to be contained in the Directors’ Report by Large and
Medium-sized Companies and Groups’ (Accounts and
Reports) Regulations 2008, Sch. 7, where not already
disclosed in the Directors’ Report.
B U S I N E S S R E L AT 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 Group’s response to the requirement of the business
relationship with suppliers, customers and others is
included within the Section 172 Statement on page 18
to 20.
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.
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
In accordance with the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013, we
report on GHG emissions as part of the strategic report
on page 13 to 15. As such, this year the Group required
to measures and reports on energy and carbon data
across its UK business, providing data to assess its
overall environmental impact for Scope 1 and 2.
In 2021 the Group reviewed the requirements of
the Environmental Reporting guidelines. For each
Company in the Group that qualifies as large their total
energy consumption was below 40MWh and therefore
the Group and Company was not required to prepare
an Energy and Carbon Report. In 2022 the Group met
the regulatory threshold and was therefore required to
report.
F U T U R E D E V E L O P M E N T S
The directors consider that the continued investment
in product and market development will allow the
business to grow organically in its core markets.
Investment in business growth initiatives will also
allow the business to move into new product and
market areas. The combination of organic growth along
with strategic acquisitions will support the expected
growth as outlined in the Chairman’s Statement and
the Strategic Report.
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 33 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
3 8
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 (2021: no dividend payment was
recommended).
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 34 to 35.
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 2022 (2021: as at 31 December 2021) were
as follows:
2022
No. of Shares
2021
No. of Shares
DG 2008 Discretionary
Settlement
538,427
538,427
D M Sherwin
750,000
750,000
P J Reason
770,714
770,714
N J Goldsmith
10,000
10,000
Directors’ interests in share options are detailed in the
Remuneration report on pages 34 to 35.
P O L I T I C A L D O N AT I O N S
The Group made no political donations in 2022 or
2021.
F I N A N C I A L I N S T R U M E N T S
The Group’s objectives and policies on financial
instruments are set out in note 21 to the financial
statements.
I N D E M N I T Y O F O F F I C E R S A N D
D I R E C T O R S
Under the Company’s Articles of Association and
subject to the provisions of the Companies Act, the
Group may and has indemnified all directors and other
officers against liability incurred in the execution or
discharge of their duties or the exercise of their powers,
including but not limited to any liability for the costs of
any legal proceedings. The Group has purchased and
maintains appropriate insurance cover against legal
action brought against directors or officers.
A N N UA L G E N E R A L M E E T I N G
The Annual General Meeting (‘AGM’) of the Company
will be held on 27 June 2023. 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.
C O R P O R AT E G O V E R N A N C E
The company’s statement on corporate governance can
be found in the corporate governance report of these
financial statements on page 30.
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 AT I O N T O A U D I T O R
During the year PKF Littlejohn LLP were appointed as
auditor. Pursuant to s489 of the Companies Act 2006, a
resolution to re-appoint PKF Littlejohn LLP as auditor
will be put to the members at the forthcoming Annual
General Meeting.
On behalf of the Board
P J Reason
Director
13 May 2023
D I R E C T O R S ’ R E P O R T ( C O N T I N U E D )
3 9
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.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have to prepare the financial statements in
accordance with UK-adopted international accounting
standards. 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 UK-adopted international
accounting standards 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.
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.
D I R E C T O R S ’ R E S P O N S I B I L I T Y S TAT E M E N T
4 0
O P I N I O N
We have audited the financial statements of Instem
Plc (the ‘parent company’) and its subsidiaries
(the ‘Group’) for the year ended 31 December
2022 which comprise the Consolidated Statement
of Comprehensive Income, the Consolidated and
Parent Company Statements of Financial Position,
the Consolidated and Parent Company Statements of
Cash Flows and the Consolidated and Parent Company
Statements of Changes in Equity, and notes to the
financial statements, including significant accounting
policies. The financial reporting framework that has
been applied in their preparation is applicable law and
UK-adopted international 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:
•
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 2022 and of the Group’s
profit for the year then ended;
•
the Group financial statements have been properly
prepared
in
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 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
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 AT I N G T O
G O I N G C O N C E R N
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. Our evaluation of the
directors’ assessment of the Group’s and parent
company’s ability to continue to adopt the going
concern basis of accounting included:
•
Obtaining management’s cash flow forecasts for
the going concern period being twelve months
from the date of signing the financial statements;
•
Ensuring the mathematical accuracy of the cash
flow forecasts;
•
Comparing actual results for the year to forecasts
to assess the forecasting ability and accuracy of
management;
•
Holding
discussions
with
management
to
understand the cash flow forecasts including the
key inputs used and sources of these inputs;
•
Challenging management on the appropriateness
of key assumptions and judgements used;
•
Identifying events subsequent to the year-end,
which would be expected to impact the Group
and Parent Company and hence the directors'
assessment of going concern, and challenging
management thereon to ensure that they had been
factored into managements and the directors’
assessment; and
•
Considering the inherent risks to the business
model and performing an analysis of how those
risks might affect the financial resources or ability
to continue operations over the going concern
period.
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 or 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.
Our responsibilities and the responsibilities of the
directors with respect to going concern are described
in the relevant sections of this report.
I N D E P E N D E N T AU D I T O R’ S R E P O RT
T O T H E M E M B E R S O F I N S T E M P L C
4 1
O U R A P P L I C AT I O N O F M AT E R I A L I T Y
Group financial statements
Parent Company financial statements
Materiality for the financial
statements as a whole
£442,000
£302,000
Basis of materiality
c. 0.75% of turnover
c. 0.5% of net assets
Rationale Benchmark
We considered revenue to be the most relevant
performance indicator of the Group as it is a
significant driver of profit or loss for the year.
The Parent Company operates primarily as a holding
company which holds the main debt facility for the Group
and as such, we consider net assets as the key metric.
Rationale Percentage
The percentage applied to the benchmark has been selected to bring into scope all significant classes of transactions,
account balances and disclosures relevant for the shareholders, and also to ensure that matters that would have a
significant impact on the results were appropriately considered.
Performance materiality – 70%
£265,000
£181,000
In determining performance materiality, we considered the following factors:
•
the number and quantum of identified misstatements identified by the predecessor auditors;
•
routine transactions are not complex
•
the consistency in the level of judgement required in key accounting estimates;
•
the stability in key management personnel; and
•
the level of centralisation in the Group’s financial reporting controls and processes.
We use performance materiality to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements exceeds
overall materiality. Specifically, we use performance
materiality in determining the scope of our audit and
the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in
determining sample sizes.
For each significant component in the scope of
our audit, we allocated a materiality based on the
maximum aggregate component materiality. The
range of materiality allocated across components was
between £186,000 and £207,000. Group materiality has
been used for material non-significant components.
We agreed with the Audit Committee that we would
report to them misstatements identified during our
audit above £22,100 as well as misstatements below
those amounts that, in our view, warranted reporting
for qualitative reasons.
O U R A P P R O A C H T O T H E A U D I T
In designing our audit, we determined materiality, as
above, and assessed the risk of material misstatement in
the financial statements. We looked at areas involving
significant accounting estimates and judgement by
the directors and considered future events that are
inherently uncertain. We also addressed the risk of
management override of internal controls, including
evaluating whether there was evidence of bias by
management that represented a risk of material
misstatement due to fraud.
The Group had 27 subsidiaries as at the reporting date.
A full scope audit was performed on the complete
financial information of four components (including
Instem Plc) which were assessed as material and
significant. 15 components were considered material
but not significant to which we performed audits of
material balances using a materiality that is less than
the materiality determined for the Group financial
statements. For the remaining components not
considered material, we performed a limited scope
analytical review together with substantive testing, as
appropriate, on Group audit risk areas applicable to
those components based on their relative size, risks in
the business and our knowledge of the entity appropriate
to respond to the risk of material misstatement.
All component audit was performed in London,
conducted by PKF Littlejohn LLP using a team with
specific experience of auditing technology companies
and publicly listed entities.
K E Y A U D I T M AT T E R S
Key audit matters are those matters that, in our
professional judgment, 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)
we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in
the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
4 2
I N D E P E N D E N T AU D I T O R’ S R E P O RT
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 )
KEY AUDIT MATTER
Revenue recognition
Note 2 – 2022: £58.9 million (2021: £46 million)
As required by the auditing standards, we
identified fraud risk related to the Group’s revenue
recognition for all revenue streams including:
•
license and hardware
•
SaaS and maintenance
•
Professional, technology and consulting
services
Whilst there are limited judgements relating to
license and SaaS and maintenance revenue, the
external focus on the revenue increases the risk of
fraudulent premature revenue recognition.
There is a risk in ascertaining the correct revenue
to be recognised for the period with reference
to IFRS 15 given management’s judgements in
relation to the percentage of completion and
in turn the revenue recognised. Inappropriate
determination of when revenue recognition
commences and terminates for the longer
contracts may result in a material misstatement.
HOW OUR SCOPE ADDRESSED THIS MATTER
Substantive audit procedures performed in respect of revenue
recognition are detailed below:
We obtained an understanding of the information system
and design and implementation of controls relevant to
each material income stream through a detailed systems
description and walkthrough process;
License and Hardware (non-service revenue)
We assessed on a sample basis whether revenue has been
recorded in the correct period, that performance obligations
have been satisfied in the correct period by ensuring delivery
was before year end and the correct transaction price has
been used in the revenue recognition calculation by agreeing
this to the contract/purchase order/sales invoice.
SaaS and Maintenance (service revenue)
We assessed on a sample basis whether revenue has been
recorded in the correct period, performance obligations
has been satisfied in the correct period and the appropriate
transaction price has been used in the revenue recognition
calculation by agreeing this to the contract term and price to
the source documentation.
We challenged managements’ percentage of completion
and recalculated the contact assets and deferred income as
at the balance sheet date to confirm that revenue has been
recognised in the correct accounting period.
Professional, Technology and Consulting services.
We assessed on a sample basis whether revenue has been
recorded in the correct period, performance obligations has
been satisfied in the correct period and the correct transaction
price has been used in the revenue recognition calculation
by agreeing this to the contract term and price to the source
documentation.
We assessed and challenged the key terms of the purchase
orders and contracts; as well as the percentage of completion
to consider Group’s assessment of the revenue recognition
consideration in line with the requirement of IFRS 15. We
substantively tested these projects in order to assess, in detail,
the terms and period of the service contract, time allocated
to the project (accuracy of costs) and substantiation provided
by the relevant Project Manager regarding the allocated
percentage completion figure of the project resulting in
revenue recognition.
We challenged management’s percentage of completion
and recalculated the accrued income and deferred income
as at balance sheet date to confirm that revenue has been
recognised in the correct accounting period.
We critically assessed the adequacy of the financial statements
disclosure in relation to revenue recognition and assessed
that the accounting policies are in line with the requirements
of IFRS 15.
4 3
KEY AUDIT MATTER
Internally generated intangible assets -
Development costs
Note 12 Software – 2022: £7.6 million (2021: £5.6
million)
There are significant judgements involved
in assessing whether expenses related to the
Group’s development of new technology meets
the capitalisation criteria of IAS38, in particular,
the point at which technical and economic
feasibility are demonstrated. During the year the
Group capitalised costs related to projects where
probable future economic benefits is achieved via
customer renewals which judgemental.
Where the capitalisation criteria as set out in
IAS38 are met, the Group makes judgements in
estimating the amount of time employees spent
on development activities to determine the
appropriate amount to capitalise.
We identified a risk of misstatement related
to both the judgement as to whether the cost
associated to a project can be capitalised and the
estimation of employees’ capitalisation time.
As such, the determination of the capitalised
development costs is subject to a high degree of
estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality
for the financial statements as a whole.
HOW OUR SCOPE ADDRESSED THIS MATTER
Our work included but was not limited to:
For a sample of projects newly capitalised in the year, we
inspected internal documentation and external assessment
documentation from project managers to evaluate whether
the technological feasibility was demonstrated at the
reporting date. We evaluated the Group’s assessment that
economic feasibility had been demonstrated by assessing the
revenue by products.
We reviewed employees’ contracts on a sample basis to
evaluate whether the work of these individuals was directly
linked to the development of the project. We considered
the different employees involved in the development of the
applications and the time spent developing the application.
We challenged the assumptions on the rate used to capitalise
the internal employee costs based on the evidence provided,
our knowledge and experience of the businesses and the
industry they operate in.
We recalculated the capitalised costs using the applicable rate
for the employees identified.
We considered the adequacy of the financial statements
disclosure in respect of the significant estimates and
judgements used in the determination of whether the
capitalisation criteria have been met and the degree of
estimation uncertainty in determining the amount to be
capitalised.
Goodwill other acquired intangible assets
impairment
Note 12 Intangible assets – 2022: £58.3 million
(2021: £58.3 million)
The estimated value in use/fair value less cost to
sell for each of the identified CGU’s is subjective
due to the inherent uncertainty and complexity
involved in forecasting and discounting future
cash flows of the CGU’s. There are also judgements
involved in the Group’s forecasts of the costs to be
excluded from the value in use estimates as well
as other assumptions such as the discount rate,
revenue retention rates, revenue multiple rates
(for the fair value less cost to sell method).
As a result, the carrying value of goodwill and
other intangibles is subject to a high degree of
estimation uncertainty, with a potential range of
reasonable outcome greater than our materiality
for the financial statements as a whole.
Our work included but was not limited to:
We assessed the appropriateness of methods used to calculate
the recoverable amounts.
We critically assessed the forecasted amounts in comparison
to post period actuals to assess management’s accuracy with
respect to forecasting. In addition, we critically assessed
other assumptions used such as the discount rate, growth
rate, overhead allocation based on our understanding of
the business, knowledge attained throughout the audit and
experience of the businesses and the industry they operate in.
With the assistance from our valuations specialist, critically
assessed the discount rates and developed our own estimate
of range of possible discount rates for each of the CGU,
based on external market data and our understanding of
the businesses, and compared this to the discount rates
determined by the Group.
We critically assessed management’s sensitivity analysis using
market data and industry outlooks while summarising the
quantitative impact on the year-end goodwill balance.
We assessed the appropriateness of the possible outcomes
using the assumptions noted above, both individually and
in aggregate, and assessed whether the disclosures reflect the
risks inherent in the recoverable amounts of the identified
CGUs.
4 4
O T H E R I N F O R M AT I O N
The other information comprises the information
included in the annual report, other than the financial
statements and our auditor’s report thereon. The
directors are responsible for the other information
contained within the annual report. Our opinion on
the Group and parent company 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.
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 course of 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 this gives rise to a material misstatement in
the financial statements themselves. If, based on the
work we have performed, we conclude that there is a
material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
O P I N I O N S O N O T H E R M AT T E R S
P R E S C R I B E D B Y T H E C O M PA N I E S
A C T 2 0 0 6
In our opinion, based on the work undertaken in the
course of the audit:
•
the information given in the strategic report and
the directors’ report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
•
the strategic report and the directors’ report have
been prepared in accordance with applicable legal
requirements.
M AT 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
In the light of the knowledge and understanding of the
Group and the parent company and their environment
obtained in the course of the audit, we have not
identified material misstatements in the strategic
report or the directors’ report.
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
adequate accounting records have not been kept
by the parent company, or returns adequate for our
audit have not been received from branches not
visited by us; or
•
the parent company financial statements are not
in agreement with the accounting records and
returns; or
•
certain disclosures of directors’ remuneration
specified by law are not made; or
•
we have not received all the information and
explanations we require for our audit.
R E S P O N S I B I L I T I E S O F
D I R E C T O R S
As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the
preparation of the Group and parent company
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 Group and parent company financial
statements, the directors are responsible for assessing
the Group 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 TAT 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.
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
I N D E P E N D E N T AU D I T O R’ S R E P O RT
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 )
4 5
procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities,
including fraud is detailed below:
•
We obtained an understanding of the Group and
Parent Company and the sector in which they
operate to identify laws and regulations that could
reasonably be expected to have a direct effect
on the financial statements. We obtained our
understanding in this regard through discussions
with management, application of cumulative audit
knowledge and experience of the sector.
•
We determined the principal laws and regulations
relevant to the Group and Parent Company in this
regard to be those arising from the:
•
Companies Act 2006;
•
UK-adopted international accounting
standards;
•
Quoted Companies Alliance Code;
•
Local laws and regulations in the jurisdictions
of the subsidiary entities;
•
AIM Rules;
•
Health and Safety Laws; and
•
Anti-bribery and anti-money laundering
regulations.
•
We designed our audit procedures to ensure the
audit team considered whether there were any
indications of non-compliance by the Group and
Parent Company with those laws and regulations.
These procedures included, but were not limited
to:
•
Holding discussions with management and the
audit committee and considering any known
or suspected instances of non-compliance
with laws and regulations or fraud;
•
Reviewing board meeting minutes;
•
Reviewing Regulatory News Service (RNS)
announcements;
•
Reviewing legal and regulatory
correspondence.
•
We also identified the risks of material misstatement
of the financial statements due to fraud. We
considered, in addition to the non-rebuttable
presumption of a risk of fraud arising from
management override of controls, that the potential
for management bias was identified in relation to
the revenue recognition, valuation of goodwill and
investments, capitalised development costs as well
as the valuation of the defined benefit obligations,
including the key actuarial assumptions applied.
We addressed this by challenging the assumptions
and judgements made by management when
auditing that significant accounting estimate and
ensuring that there were adequate disclosures
included in the respective notes including the
disclosures within critical accounting estimates.
•
As in all of our audits, we addressed the risk of fraud
arising from management override of controls
by performing audit procedures which included,
but were not limited to: the testing of journals;
reviewing accounting estimates for evidence of
bias; and evaluating the business rationale of any
significant transactions that are unusual or outside
the normal course of business.
Because of the inherent limitations of an audit, there is
a risk that we will not detect all irregularities, including
those leading to a material misstatement in the financial
statements or non-compliance with regulation. This
risk increases the more that compliance with a law or
regulation is removed from the events and transactions
reflected in the financial statements, as we will be less
likely to become aware of instances of non-compliance.
The risk is also greater regarding irregularities
occurring due to fraud rather than error, as fraud
involves intentional concealment, forgery, collusion,
omission or misrepresentation.
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.
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.
Daniel Hutson (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
13 May 2023
4 6
Note
Year ended
31 December
2022
£000
Year ended
31 December
2021
£000
REVENUE
2
58,880
46,017
Employee benefits expense
3
(34,437)
(26,918)
Other expenses
3
(13,776)
(10,491)
Net impairment gain/(loss) on financial assets
16
196
(358)
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING ITEMS (ADJUSTED EBITDA)
10,863
8,250
Depreciation
14
(340)
(312)
Amortisation of intangibles arising on acquisitions
12
(1,953)
(1,563)
Amortisation of internally generated intangibles
12
(1,096)
(851)
Depreciation of right of use assets
9
(967)
(945)
Impairment of goodwill
12
(107)
-
OPERATING PROFIT BEFORE NON-RECURRING ITEMS
6,400
4,579
Non-recurring costs
4
(1,208)
(1,286)
Non-recurring income
4
401
805
OPERATING PROFIT AFTER NON-RECURRING ITEMS
5,593
4,098
Finance income
5
1,023
30
Finance costs
6
(1,143)
(1,144)
PROFIT BEFORE TAXATION
5,473
2,984
Taxation
11
(776)
(1,306)
PROFIT FOR THE YEAR
4,697
1,678
OTHER COMPREHENSIVE (EXPENSE)/ INCOME
Items that will not be reclassified to profit and loss account:
Actuarial (loss)/gain on net defined benefit liability
25
(561)
1,375
Deferred tax on actuarial gain/(loss)
140
(140)
(421)
1,235
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations
(1,596)
(294)
OTHER COMPREHENSIVE (EXPENSE)/INCOME FOR THE YEAR
(2,017)
941
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2,680
2,619
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
4,697
1,678
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY
2,680
2,619
Earnings per share
Basic
28
20.8
7.8
Diluted
28
19.8
7.4
The notes on pages 68 to 116 form part of these financial statements.
For the year ended 31 December 2022
C O N S O L I D AT E D S TAT 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
4 7
At 31 December 2022
C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N
2022
2021
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
12
58,341
58,311
Property, plant and equipment
14
768
592
Right of use assets
9
1,120
2,077
Finance lease receivables
9
42
85
TOTAL NON-CURRENT ASSETS
60,271
61,065
CURRENT ASSETS
Inventories
15
76
64
Trade and other receivables
16
18,345
14,852
Finance lease receivables
9
53
44
Tax receivable
-
130
Cash and cash equivalents
17
13,964
15,021
TOTAL CURRENT ASSETS
32,438
30,111
TOTAL ASSETS
92,709
91,176
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
18
5,327
5,723
Deferred income
19
22,745
18,935
Tax payable
23
251
-
Financial liabilities
20
5,765
6,612
Lease liabilities
9
814
1,077
TOTAL CURRENT LIABILITIES
34,902
32,347
NON-CURRENT LIABILITIES
Financial liabilities
20
-
4,728
Pension obligations
25
2,013
2,014
Provision for liabilities
26
45
291
Lease liabilities
9
491
1,248
Deferred tax liabilities
24
1,901
3,247
TOTAL NON-CURRENT LIABILITIES
4,450
11,528
TOTAL LIABILITIES
39,352
43,875
EQUITY
Share capital
27
2,270
2,219
Share premium
29
28,224
28,191
Merger reserve
29
14,013
12,104
Share based payment reserve
29
3,570
2,294
Translation reserve
29
(1,798)
(202)
Retained earnings
29
7,078
2,695
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
53,357
47,301
TOTAL EQUITY AND LIABILITIES
92,709
91,176
The financial statements on pages 46 to 116 were approved by the board of directors and authorised for issue on 13 May 2023 and
are signed on its behalf by:
P J Reason
N J Goldsmith
Director
Director
Company Registration No. 07148099
4 8
2022
2021
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
7
17
Investments
13
63,724
47,188
TOTAL NON-CURRENT ASSETS
63,731
47,205
CURRENT ASSETS
Trade and other receivables
16
25,470
20,322
Cash and cash equivalents
17
22
3,294
TOTAL CURRENT ASSETS
25,492
23,616
TOTAL ASSETS
89,223
70,821
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
18
27,894
16,632
Financial liabilities
20
965
2,122
TOTAL CURRENT LIABILITIES
28,859
18,754
NON-CURRENT LIABILITIES
Financial liabilities
20
-
757
TOTAL NON-CURRENT LIABILITIES
-
757
TOTAL LIABILITIES
28,859
19,511
EQUITY
Share capital
27
2,270
2,219
Share premium
29
28,224
28,191
Merger reserve
29
25,647
23,738
Share based payment reserve
29
3,021
1,765
Retained earnings
29
1,202
(4,603)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
60,364
51,310
TOTAL EQUITY AND LIABILITIES
89,223
70,821
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 gain for the year was £5,698,000 (2021: loss of £1,386,000).
The notes on pages 68 to 116 form part of these financial statements.
The financial statements on pages 46 to 116 were approved by the board of directors and authorised for issue on 13
May 2023 and are signed on its behalf by:
P J Reason
N J Goldsmith
Director
Director
At 31 December 2022
C O M PA N Y S TAT E M E N T O F F I N A N C I A L P O S I T I O N
Company Registration No. 07148099
4 9
For the year ended 31 December 2022
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
2022
2021
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation
5,473
2,984
Adjustments for:
Depreciation
14
340
312
Amortisation of intangibles
12
3,049
2,414
Depreciation of right of use assets
9
967
945
Share based payment charge
3
1,377
1,061
Contributions to defined benefit pension scheme
25
(598)
(530)
Government support loan forgiveness
4
-
(805)
Finance income
5
(1,023)
(30)
Finance costs
6
1,143
1,144
Impairment on goodwill
12
107
-
Loss on disposal of fixed assets
(4)
3
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
10,831
7,498
Movements in working capital:
Increase in inventories
(12)
(14)
Increase in trade and other receivables
(2,866)
(1,573)
Increase in trade, other payables and deferred income
2,185
4,432
Decrease in provision
26
(281)
-
NET CASH GENERATED FROM OPERATIONS
9,857
10,343
Finance income
5
91
6
Finance costs
6
(266)
(276)
Income taxes
(1,810)
(873)
NET CASH GENERATED FROM OPERATING ACTIVITIES
7,872
9,200
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs and software
12
(3,036)
(2,238)
Purchase of property, plant and equipment
14
(478)
(144)
Payment of deferred consideration
-
(277)
Purchase of subsidiary undertakings (net of cash acquired)
-
(14,840)
NET CASH USED IN INVESTING ACTIVITIES
(3,514)
(17,499)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
36
22
Repayment of lease liabilities
22
(1,096)
(963)
Receipts from sublease of asset
9
53
40
Repayment of former PDS’s shareholder loan
22
-
(2,387)
Payment of deferred consideration
(3,891)
-
Payment of contingent consideration
(1,463)
-
NET CASH GENERATED (USED IN)/FROM FINANCING ACTIVITIES
(6,361)
(3,288)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(2,003)
(11,587)
Cash and cash equivalents at start of year
15,021
26,724
Effects of exchange rate changes on the balance of cash held in foreign currencies
946
(116)
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
13,964
15,021
The notes on pages 68 to 116 form part of these financial statements.
5 0
Note
2022
2021
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(Loss) before taxation
5,698
(1,386)
Adjustments for:
Amortisation of intangibles
10
10
Finance income
(5)
(21)
Finance cost
1,052
462
Impairment of goodwill
1,356
-
Dividend income
(8,456)
-
CASH FLOWS USED IN OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL
(345)
(935)
Movements in working capital:
Increase in trade and other receivables
(14,442)
(9,561)
Increase in trade and other payables
14,444
8,164
NET CASH GENERATED FROM OPERATIONS
(343)
(2,332)
Finance income
-
21
Finance costs
(122)
(86)
NET CASH GENERATED USED IN OPERATING
ACTIVITIES
(465)
(2,397)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary undertakings (net of cash acquired)
-
(14,590)
NET CASH USED IN INVESTING ACTIVITIES
-
(14,590)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
36
22
Payment of deferred consideration
(1,314)
-
Payment of contingent consideration
(1,000)
-
NET CASH GENERATED FROM FINANCING
ACTIVITIES
(2,278)
22
NET DECREASE IN CASH AND CASH EQUIVALENTS
(2,743)
(16,965)
Cash and cash equivalents at start of year
3,294
20,269
Effects of exchange rate changes on the balance of cash held
in foreign currencies
(529)
(10)
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
22
3,294
The notes on pages 68 to 116 form part of these financial statements.
C O M PA N Y S TAT E M E N T O F C A S H F L O W S
For the year ended 31 December 2022
5 1
ATTRIBUTABLE TO OWNERS OF THE COMPANY
C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y
Note
Share capital
£000
Share
premium
£000
Merger
reserve
£000
Share based
payment
reserve
£000
Translation
reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance as at 1 January 2021
2,048
28,172
2,432
930
92
(438)
33,236
Profit for the year
-
-
-
-
-
1,678
1,678
Other comprehensive (expense)/
income for the year
-
-
-
-
(294)
1,235
941
Total comprehensive expense
-
-
-
-
(294)
2,913
2,619
Shares issued
27
171
19
9,672
-
-
-
9,862
Share based payment
10
-
-
-
1,061
-
-
1,061
Deferred tax on share options
-
-
-
528
-
-
528
Nil cost option charge
-
-
-
(5)
-
-
(5)
Reserve transfer on lapse of share
options
-
-
-
(25)
-
25
-
Reserve transfer on exercise of
share options
-
-
-
(195)
-
195
-
Balance as at 31 December 2021
2,219
28,191
12,104
2,294
(202)
2,695
47,301
Profit for the year
-
-
-
-
-
4,697
4,697
Other comprehensive (expense)
for the year
-
-
-
-
(1,596)
(421)
(2,017)
Total comprehensive (expense)/
income
-
-
-
-
(1,596)
4,276
2,680
Shares issued
27
51
33
1,909
-
-
-
1,993
Share based payment
10
-
-
-
1,377
-
-
1,377
Deferred tax on share options
-
-
-
20
-
-
20
Nil cost option charge
-
-
-
(14)
-
-
(14)
Reserve transfer on lapse of share
options
-
-
-
-
-
-
-
Reserve transfer on exercise of
share options
-
-
-
(107)
-
107
-
Balance as at 31 December 2022
2,270
28,224
14,013
3,570
(1,798)
7,078
53,357
The notes on pages 68 to 116 form part of these financial statements.
5 2
C O M PA N Y S TAT 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
Note
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Share based
payment
reserve issued
£000
Retained
earnings
£000
Total
equity
£000
Balance as at 1 January 2021
2,048
28,172
14,066
929
(3,437)
41,778
Loss for the year
-
-
-
-
(1,386)
(1,386)
Shares issued
27
171
19
9,672
-
-
9,862
Share based payment
10
-
-
-
1,061
-
1,061
Nil cost option charge
-
-
-
(5)
-
(5)
Reserve transfer on lapse of share
options
-
-
-
(25)
25
-
Reserve transfer on exercise of share
options
-
-
-
(195)
195
-
Balance as at 31 December 2021
2,219
28,191
23,738
1,765
(4,603)
51,310
Profit for the year
-
-
-
-
5,698
5,698
Shares issued
27
51
33
1,909
-
-
1,993
Share based payment
10
-
-
-
1,377
-
1,377
Nil cost option charge
-
-
-
(14)
-
(14)
Reserve transfer on lapse of share
options
-
-
-
-
-
-
Reserve transfer on exercise of share
options
-
-
-
(107)
107
-
Balance as at 31 December 2022
2,270
28,224
25,647
3,021
1,202
60,364
The notes on pages 68 to 116 form part of these financial statements.
5 3
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 AT I O N
The principal activity and nature of operations of
the Group is the provision of 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 TAT 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 in conformity with
the requirements of the Companies Act 2006 and the
AIM listed rules.
B A S I S O F P R E PA R AT I O N
The Group’s accounting reference date is 31 December,
amounts are rounded to the nearest thousand unless
otherwise stated.
The consolidated financial statements have been
prepared on a going concern basis and prepared on the
historical cost basis, except for the following:
•
defined benefit pension plans – plan assets
measured at fair value
•
contingent consideration liability – measured at
fair value or revalued amount
Refer to the Going Concern note for further details.
The Consolidated financial statements and related
notes represent results from continuing operations,
there being no discontinued operations in the years
presented.
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
Limited
(company
number
03548215),
Instem
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.
A D O P T I O N O F I F R S
The Group and Company financial statements have
been prepared in accordance with UK-adopted
international accounting standards and International
Financial
Reporting
Interpretations
Committee
(IFRICs) effective as at 31 December 2022. 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 2022.
The most significant of these are as follows:
•
Reference
to
the
Conceptual
Framework
(Amendments to IFRS 3)
•
COVID-19 – Related Rent Concessions beyond 30
June 2021 (Amendments to IFRS 16)
•
Property, Plant and Equipment: Proceeds Before
Intended Use (Amendments to IAS 16)
•
Onerous Contracts – Cost of Fulfilling a Contract
(Amendments to IAS 37)
•
Annual Improvements (2018-2020 Cycle):
•
Subsidiary
as
a
First-time
Adopter
(Amendments to IFRS 1)
•
Fees in the ‘10 per cent’ Test for Derecognition
of Liabilities (Amendments to IFRS 9)
•
Lease Incentives (Amendments to IFRS 16)
•
Taxation
in
Fair
Value
Measurements
(Amendments to IAS 41).
Those standards, amendments to standards, and
interpretations have been adopted and did not have
a material impact on the accounting policies of the
Group.
5 4
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 2023:
•
IFRS 17 ‘Insurance Contracts’
•
Amendments to IFRS 17 ‘Insurance Contracts’
(Amendments to IFRS 17 and IFRS 4)
•
Disclosure of Accounting Policies (Amendments
to IAS 1 and IFRS Practice Statement 2)
•
Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction (Amendments
to IAS 12)
•
Disclosure of Accounting Policies (Amendments
to IAS 1)
•
Definition of Accounting Estimates (Amendments
to IAS 8)
These standards are not expected to have a material
impact on the entity in the current or future reporting
periods and on foreseeable future transactions.
B A S I S O F C O N S O L I D AT I O N
The consolidated financial statements incorporate those
of the parent company, Instem plc, and its subsidiary
undertakings made up to 31 December 2022 and 31
December 2021.
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 AT I O N S
The Group applies the acquisition method in accounting
for
business
combinations.
The
consideration
transferred in a business combination is measured
at fair value, which is calculated as the sum of the
acquisition date fair values of the assets transferred
by the Group, liabilities incurred by the Group to the
former owners of the acquiree and the equity interests
issued by the Group in exchange for control of the
acquiree. Acquisition related costs are recognised in
profit or loss as incurred.
At the acquisition date, the identifiable assets acquired
and the liabilities assumed are recognised at their fair
value, except that deferred tax assets or liabilities are
recognised and measured in accordance with IAS 12
‘Income taxes’.
Consideration may consist of deferred consideration
and contingent consideration. Deferred consideration
is not based on any performance related conditions
and is payable on an agreed future date. Contingent
consideration is based on certain performance related
conditions and payable on an agreed future date, if
those conditions are met.
Deferred consideration and contingent consideration
is measured at their acquisition-date fair value
and are taken into account in the determination of
goodwill. Changes in the fair value of the contingent
consideration that qualify as measurement period
adjustments
are
adjusted
retrospectively,
with
corresponding adjustments against goodwill. The
subsequent accounting for changes in the fair value
of the contingent consideration that do not qualify as
measurement period adjustments depends on how the
contingent consideration is classified.
Contingent consideration that is classified as a liability
is re-measured at subsequent reporting dates with the
corresponding gain or loss being recognised in the
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.
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 )
5 5
Background
The Directors have adopted the going concern basis
in preparing these financial statements after careful
assessment of identified principal risks and the possible
adverse impact on financial performance. The Directors
have assessed the financial position and liquidity at the
end of the reporting period and for the forecast period
up to 31 December 2024, 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 2022 has been strong with Revenues
of £58.9m and Adjusted EBITDA of £10.9m. For this
measure of earnings, the margin as a percentage of
revenue increased in the period to 18.4% compared
with 17.9% in 2021. The Group managed to increase its
revenue in line with the salary inflation through sales
price increases.
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.
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.
Even though the Group spent £17.2m initially funding
the acquisition of The Edge, d-Wise and PDS in 2021
followed by £5.4m in 2022 on deferred and contingent
consideration, the Group has a strong cash position
with £14.0m in the bank as of 31 December 2022.
The Group cash generated from operations for the year
was £9.9m (2021: £10.3m), a small reduction from
prior year primarily due to working capital movement
and the settlement of an historical contract dispute. The
dispute, which did not affect the ongoing operations of
the Group, was settled in October 2022. As previously
announced the Group had already created provision
of £0.25m in 2017, which was maintained in the 2021
financial statements. In 2022, the Group increased the
provision equal to the amount that the legal dispute was
settled at €1.48m (£1.3m), towards which its insurer
contributed €0.45m (£0.4m) resulting in a net payment
due of approx. €1.0m (£0.9m).
The Group acquired the earnings enhancing, cash
generative businesses of the Edge, d-Wise, and PDS,
which have been steadily integrated within the Group
during 2022.
The remaining financial obligations associated with The
Edge and d-Wise acquisitions for 2023 are deferred and
contingent consideration payments of £3.6m and £2.2m
respectively in cash. The contingent consideration
provision reflected management’s estimate that the
entities would achieve their profitability targets and
that the full amount of contingent consideration would
be paid. This profitability target was confirmed as
achieved in the period.
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 Centrus, our new solution suite incorporating
the acquired ToxHub technology (note 33).
(a) Base Case Scenario
The Group's detailed forecasts and projections, taking
account of potential risks and uncertainties in the
business, market and liquidity through sensitivity
analysis, show that the Group has adequate resources to
enable it to continue in operation through the forecast
period ending 31 December 2024 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 current inflation outlook has been considered as
part of the sensitivity analysis and as part of Group's
adoption of the going concern basis. Thus far we have
not observed any material impact on our overall existing
business or in the level of new business opportunities
that are being presented to us in the markets in which
we operate.
The Group has a significant proportion of recurring
revenue (circa 59% 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.
5 6
(b) Sensitised Scenario
Further stress testing has been carried out to ensure
that the Group has sufficient cash resources to continue
its operations until at least 31 December 2024. In
preparing this analysis the following key risks were
included - 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
profitable and cash generative over the going concern
period to December 2024.
In a worse case 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 and 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 and as a
minimum until 31 December 2024. 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
The Group generates revenue from the provision of
software licences, annual support, SaaS subscriptions,
subscription and support, professional services,
technology
enabled
outsourced
services
and
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 inception, the transaction price is
determined, being the amount that the Group expects
to receive for transferring the promised goods or
services. The transaction price is allocated to the
performance obligations in the contract based on
their relative standalone selling prices. The Group
has determined that the contractually stated price
represents the standalone selling price for each
performance obligation.
Revenue is recognised when a performance obligation
has been satisfied by transferring the promised product
or service to the customer.
Software licences
Licence revenue comprises the sale of software licences
across the Group and the sale of compound credits
by Leadscope 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
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 )
5 7
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.
Subscription and support
Customers typically enter into a Subscription contract
for an agreed period which 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 of 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
statistical 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
services,
technology
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.
5 8
Practical exemptions
The Group has taken advantage of the following
practical exemptions:
•
not to account for significant financing components
where the time difference between receiving
consideration and transferring control of goods (or
services) to its customer is one year or less;
•
expense the incremental costs of obtaining a
contract when the amortisation period of the asset
otherwise recognised would have been one year or
less; and
•
to not disclose information relating to performance
obligations for contracts that had an original
expected duration of one year or less, or where
the right to consideration from a customer is an
amount that corresponds directly with the value of
the completed performance obligations.
A D J U S T E D E A R N I N G S
B E F O R E I N T E R E S T,
TA X AT I O N , D E P R E C I AT I O N ,
A M O R T I S AT 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.
S E G M E N TA L D I S C L O S U R E S
During the Period, 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 in recent years.
The operations of the Group are managed centrally
with group-wide functions including sales, marketing,
software
development,
information
technology,
customer support, people & culture 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. However, during 2022 CTA
has benefited from synergies resulting in an overall
improvement on the direct contribution margin.
F O R E I G N C U R R E N C I E S
Transactions in foreign currencies are translated
at the foreign exchange rate ruling at the date of
the transaction. Monetary assets and liabilities
denominated in foreign currencies at the reporting
date are translated at the foreign exchange rate ruling
at that date. Foreign exchange differences arising
on translation are recognised in profit or loss. Non-
monetary assets and liabilities that are measured
in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at
fair value are translated at foreign exchange rates ruling
at the date the fair value was determined.
The assets and liabilities of foreign operations,
including goodwill and fair value adjustments arising
on consolidation, are translated at foreign exchange
rates ruling at the reporting date. The revenue and
expenses of foreign operations are translated at an
average rate for the year where this rate approximates
to the foreign exchange rates ruling at the dates of the
transactions, or otherwise at the exchange rate ruling at
the date of each transaction.
Exchange differences arising from the translation of
foreign operations are taken directly to the translation
reserve. They are released into profit or loss upon
disposal of the foreign operation.
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 )
5 9
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 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
Average rate for year ended 31 December 2022
1.2378
1.1743
1.1765
8.3038
97.1622
161.2528
Closing rate at 31 December 2022
1.2103
1.1273
1.1187
8.336
100.1024
158.3699
The consolidated financial statements are presented in
Sterling (GBP), which is also the functional currency of
the Parent Company. The functional currencies of each
of the companies in the Group are as follows:
Instem plc
Sterling (GBP)
Instem Life Science Systems Limited
Sterling (GBP)
Instem LSS Limited
Sterling (GBP)
Instem LSS (North America) Limited
US Dollars (USD)
Instem LSS Asia Limited
Hong Kong Dollars (HKD)
Instem Information Systems (Shanghai)
Limited
Renminbi (RMB)
Instem Scientific Limited
Sterling (GBP)
Instem Scientific Solutions Limited
Sterling (GBP)
Instem Scientific Inc
US Dollars (USD)
Instem India Pvt Limited
Indian Rupees (INR)
Instem Clinical Holdings Limited
Sterling (GBP)
Instem Clinical Limited
Sterling (GBP)
Instem Clinical Inc
US Dollars (USD)
Perceptive Instruments Limited
Sterling (GBP)
Instem Japan K.K
Japanese Yen (JPY)
Samarind Limited
Sterling (GBP)
Notocord Systems S.A.
Euro (EUR)
Notocord Inc.
US Dollars (USD)
Leadscope Inc.
US Dollars (USD)
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)
N O N R E C U R R I N G I T E M S
Non recurring items are items of income and expenses
which are material and, due to their nature or size,
are presented separately on the face of the statement
of comprehensive income in order to provide a better
understanding of the Group’s financial performance.
Those items 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.
G R A N T
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.
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.
6 0
S H A R E - B A S E D PAY 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 the subsidiaries are recognised as a capital
contribution in the subsidiaries and added to the cost
of investment within Instem plc.
TA X AT 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 TA 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
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
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 )
6 1
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 is technically and
commercially feasible; and
•
sufficient resources are available to complete the
development and to either sell or use the asset.
Capitalised development costs are those which are
directly attributable to the development activity and
include employee costs, overheads and direct third
party costs.
Where the criteria have not been met, 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.
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
6 2
associated with facilities management services at
offices. The Group has elected to not separate its leases
for offices into lease and non-lease components and
instead accounts for these contracts as a single lease
component.
Measurement and recognition of leases as a lessee
All leases are accounted for by recognising a right of
use asset and a lease liability except for:
•
Leases of low value assets; and
•
Leases with a term of 12 months or less.
Lease liabilities are measured at the present value of
the contractual payments due to the lessor over the
lease term, discounted using the Group’s incremental
borrowing rate because as the lease contracts are
negotiated with third parties it is not possible to
determine the interest rate that is implicit in the lease.
The incremental borrowing rate is the estimated rate
that the Group could have to pay to borrow the same
amount over a similar term and with similar security to
obtain an asset of equivalent value. This rate is adjusted
should the lessee entity have a different risk profile to
that of the Group.
Lease payments included in the measurement of the
lease liability are made up of fixed payments (including
in substance fixed) and variable payments based on an
index or rate.
In such cases, the initial measurement of the lease
liability assumes the variable element will remain
unchanged throughout the lease term. Other variable
lease payments are expensed in the period to which
they relate.
On initial recognition, the carrying value of the lease
liability also includes:
•
amounts expected to be payable under any residual
value guarantee;
•
the exercise price of any purchase option granted
in favour of the Group if it is reasonably certain to
assess that option;
•
any penalties payable for terminating the lease, if
the term of the lease has been estimated on the
basis of termination option being exercised.
Right of use assets are initially measured at the amount
of the lease liability, reduced for any lease incentives
received, and increased for:
•
lease payments made at or before commencement
of the lease;
•
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 renegotiation results in
an increase in 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
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 )
6 3
•
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 effect. The Group also leases one
vehicle. Leases of vehicle 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 PA 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 impairment whenever events or changes in
circumstances indicate the carrying value may not be
recoverable.
At each reporting date the Group reviews the carrying
value of its property, plant and equipment and intangible
assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any
such indication exists the recoverable amount of the
asset is estimated in order to determine the extent of
the impairment loss.
Where the asset does not generate cash flows that are
independent from other assets the Group estimates
the recoverable amount of the cash generating unit
(‘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 asset is increased to the
revised estimate of its recoverable amount, but so that
the increased carrying amount does not exceed the
carrying amount that would have been determined
had no impairment loss been recognised for the asset
in prior years. A reversal of an impairment loss is
recognised in profit or loss immediately.
I M PA I R M E N T T E S T I N G O F
G O O D W I L L
For impairment assessment purposes, assets are
grouped at the lowest levels for which there are largely
independent cash inflows (CGUs).
CGUs to which goodwill has been allocated are tested
for impairment at least annually.
An impairment loss is recognised for the amount by
which a CGU’s carrying amount exceeds its recoverable
amount, which is the higher of fair value less costs of
disposal and value-in-use.
6 4
To determine the value-in-use, management estimates
expected future cash flows from each CGU 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 using an approach agreed by the board.
To determine the fair value less cost to sell, management
estimates the cash flow that will be received by selling
the CGU at the end of the reporting period. They
then assess the characteristics of that particular CGU
from the perspective of the market participants at the
measurement date.
Impairment losses for CGUs reduce first the carrying
amount of any goodwill allocated to that CGU. Any
remaining impairment loss is charged pro rata to the
other assets in the CGU.
With the exception of goodwill, all assets are
subsequently reassessed for indications that an
impairment loss previously recognised may no longer
exist. An impairment loss is reversed if the asset’s
or CGU’s recoverable amount exceeds its carrying
amount.
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, other direct costs, and billable employee
expenses.
Provision is made where necessary for obsolete and
slow-moving inventory.
P R O V I S I O N A N D C O N T I N G E N T
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.
No liability is recognised if an outflow of economic
resources as a result of a present obligation is not
probable. Such situations are disclosed as contingent
liabilities unless the outlow of resources is remote.
F I N A N C I A L I N S T R U M E N T S
Financial assets
The Group classifies its financial assets at amortised
cost. The classification depends on the purpose for
which the financial assets were acquired. Management
determines the classification of its financial assets at
initial recognition.
Financial assets at amortised cost
These assets arise principally from the provision of
goods and services to customers (eg trade receivables),
but also incorporate other types of financial assets where
the objective is to hold these assets in order to collect
contractual cash flows, and the contractual cash flows
are solely payments of principal and interest. They are
initially recognised at fair value plus transaction costs
that are directly attributable to their acquisition or
issue, and are subsequently carried at amortised cost,
less provision for impairment.
The Group's financial assets measured at amortised
cost comprise trade and other receivables, and cash
and cash equivalents in the consolidated statement of
financial position.
Trade receivables
Trade and other receivables are amounts due from
customers for services performed in the ordinary
course of business. If collection is expected in one
year or less (or in the normal operating cycle of the
business, if longer) they are classified as current assets,
if not, they are presented as non-current assets.
Trade and other receivables are measured at the
transaction price in accordance with IFRS 15.
The Group applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and
contract assets. To measure the expected credit losses,
trade receivables and contract assets have been grouped
based on shared credit risk characteristics and the
days past due. The expected loss rates are based on the
payment profiles of sales over a period of 5 years before
31 December 2022 (2021: 31 December 2021) 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
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 )
6 5
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.
Financial liabilities and equity
Financial liabilities and equity instruments are
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.
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
6 6
under the scheme will receive on retirement. The
cost of providing the benefits is determined using the
projected unit credit method with actuarial valuations
being carried out regularly.
An asset or liability is recognised equal to the present
value of the defined benefit obligation, adjusted for
unrecognised past service costs and reduced by the fair
value of plan assets.
Actuarial gains and losses are recognised in the
statement of other comprehensive income in the
year in which they occur, whilst expected returns on
plan assets, servicing costs and financing costs are
recognised in the statement of comprehensive income.
The rate used to discount the benefit obligations is
based on market yields for high quality corporate
bonds with terms and currencies consistent with those
of the benefit obligations.
C L I M AT E - R E L AT E D M AT T E R S
Risks induced by climate changes may have future
adverse effects on the Group’s business activities. These
risks include transition risks (eg regulatory changes
and reputational risks) and physical risks (even if the
risk of physical damage is low due to the company
activities and geographical locations).
Consistent with the prior year, as at 31 December 2022,
the Group has not identified significant risks induced
by climate changes that could negatively and materially
affect the Group’s financial statements. Management
continuously assesses the impact of climate-related
matters.
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 AT 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
enabled
outsourced
services
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 obligations.
The promises to provide services to the customer may
be separately identifiable. However, the services are
highly interdependent, interrelated. The Group would
not be able to fulfil its promise by transferring each
service 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. 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. The subscription and support
are highly interdependent; customers are required to
take both the software and support services 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 2022, 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. In 2023, we expect
that the CGU composition will move in line with the
operating segments as the operations of the Group
will become even more integrated due to the current
year’s reorganizational changes.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
cash flows 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 2022 was
£34.6m (2021: £34.6m). Refer to note 12 for further
detail.
Management estimates discount rates using pre-tax
rates that reflect current market assessments of the time
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 )
6 7
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 weighted average based on 2022 revenue 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
are considering business growth rates, payroll and
other cost base increases; further details are provided
in note 12.
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. The budgeted unallocated
departmental costs are assigned to each CGU applying
a standard methodology approved by the Board.
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.
Asset held for sale (AHFS) and discontinued operation
On 1 April 2023, Instem completed the disposal of
Samarind Limited with consideration receivable up
to £1.0m, of which £0.8m was satisfied by cash receipt
on completion, plus or minus estimated net cash, and
the remaining balance of £0.2m payable contingent on
Samarind’s future performance that would be payable
in cash.
The Group did not classify Samarind Limited as AHFS
as Management concluded that the disposal was not
highly probable to be completed under the IFRS 5
requirement and based on the available information as
of 31 December 2022.
Samarind Limited was acquired 27 May 2016 without
the view of resale but the decision to sell this unit was
concluded when the Group reviewed and assessed their
future strategic plans.
As the IFRS 5 criteria were not met as of 31 December
2022, Samarind’s Limited disposal is disclosed as a non-
adjusting subsequent event (note 33). Additionally,
the Consolidated financial statements and related
notes represent results from continuing operations,
there being no discontinued operations in the years
presented. However, the offer price from the buyer was
used on the impairment testing (note 12).
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
20).
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 2022 was £2.0m (2021: £2.0m).
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.
6 8
N O T E S T O T H E F I N A N C I A L S TAT E M E N T S
1. S E G M E N TA L R E P O R T I N G
The Group has disaggregated revenue 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) has been identified as the Board of Directors. The Board
is responsible for monitoring the performance of these operating segments as well as deciding on the allocation of
resources to them.
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 following the acquisition of d-Wise.
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 recent years. The operations of the Group
are managed centrally with group-wide functions including sales, marketing, software development, information
technology, customer support, people & culture and finance & administration. The CTA segment already bears the
majority of its costs directly and as such reports a lower direct contribution margin. However, during 2022 CTA has
benefited from synergies which result in an overall improvement on the direct contribution margin.
The analysis provided below reflects costs directly attributable to the respective segments in 2022 and 2021, 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.
Additionally, the Group CODM is managing and monitoring the assets and liabilities as a whole since the finance
system records the assets and liabilities by legal entity. The CODM consider that any such allocation of assets and
liabilities to the operating segments would be arbitrary and sensitive.
6 9
1. S E G M E N TA L R E P O R T I N G ( C O N T I N U E D )
SEGMENTAL REPORTING
2022
Study
Management
£000
Regulatory
Solutions
£000
In Silico
Solutions
£000
Clinical Trial
Acceleration
£000
Total
£000
Licence fees
4,756
492
666
135
6,049
Annual support fees
8,977
1,222
1,898
8,718
20,815
SaaS subscription and support fees
9,219
3,545
-
894
13,658
Professional services
2,694
407
121
7
3,229
Technology enabled outsourced services
-
6,368
1,100
1,028
8,496
Consultancy services
-
-
-
6,633
6,633
Total revenue
25,646
12,034
3,785
17,415
58,880
Direct attributable costs
(12,563)
(8,516)
(1,783)
(13,017)
(35,879)
Contribution to indirect overheads
13,083
3,518
2,002
4,398
23,001
Contribution to indirect overheads %
51%
29%
53%
25%
Central unallocated indirect costs
(12,138)
Adjusted EBITDA
10,863
Depreciation
(340)
Amortisation of intangibles arising on acquisitions
(1,953)
Amortisation of internally generated intangibles
(1,096)
Depreciation of right of use assets
(967)
Impairment of goodwill
(107)
OPERATING PROFIT BEFORE NON-RECURRING ITEMS
6,400
Non-recurring costs
(1,208)
Non-recurring income
401
OPERATING PROFIT AFTER NON-RECURRING ITEMS
5,593
Finance income
1,023
Finance costs
(1,143)
PROFIT BEFORE TAXATION
5,473
7 0
1. S E G M E N TA L R E P O R T I N G ( 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
Licence fees
3,560
273
639
125
4,597
Annual support fees
7,630
1,170
1,573
4,004
14,378
SaaS subscription and support fees
6,069
3,124
-
511
9,704
Professional services
3,000
579
18
54
3,651
Technology enabled outsourced services
-
4,864
812
702
6,378
Consultancy services
-
-
-
7,309
7,309
Total revenue
20,259
10,010
3,042
12,706
46,017
Direct attributable costs
(10,388)
(6,016)
(1,681)
(11,308)
(29,393)
Contribution to indirect overheads
9,871
3,994
1,361
1,398
16,624
Contribution to indirect overheads %
49%
40%
45%
11%
Central unallocated indirect costs
(8,374)
Adjusted EBITDA
8,250
Depreciation
(312)
Amortisation of intangibles arising on acquisitions
(1,563)
Amortisation of internally generated intangibles
(851)
Depreciation of right of use assets
(945)
OPERATING PROFIT BEFORE NON-RECURRING ITEMS
4,579
Non-recurring costs
(1,286)
Non-recurring income
805
OPERATING PROFIT AFTER NON-RECURRING ITEMS
4,098
Finance income
30
Finance costs
(1,144)
PROFIT BEFORE TAXATION
2,984
7 1
2. 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
REVENUE BY PRODUCT TYPE
2022
£000
2021
£000
Licence fees
6,049
4,597
Annual support fees
20,815
14,378
SaaS subscription and support fees
13,658
9,704
Professional services
3,229
3,651
Technology enabled outsourced services
8,496
6,378
Consultancy services
6,633
7,309
58,880
46,017
REVENUE BY GEOGRAPHICAL LOCATION
2022
£000
2021
£000
UK
3,295
3,540
Europe
8,848
7,477
USA
35,186
26,831
Rest of World
11,551
8,169
58,880
46,017
United Kingdom and USA have been identified as the major markets where the revenue from the customers in the
Group is domiciled.
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY
GEOGRAPHICAL LOCATION
2022
£000
2021
£000
UK
55,076
56,925
Europe
2,218
1,895
USA
2,767
1,812
Rest of World
210
433
60,271
61,065
There were no customers which represented more than 10% of the Group’s revenue in 2022 (2021: none).
a. Contract Balances
2022
2021
£000
Amounts
recoverable on
contracts
Deferred
income
Amounts
recoverable on
contracts
Deferred
income
At 1 January
2,040
(18,935)
1,826
(9,878)
Transfer in the period from amounts recoverable on contracts
to trade receivables
(2,040)
-
(1,826)
-
Amounts included in deferred income that was recognised as
revenue during the period
-
18,935
-
9,878
Deferred income on acquisition of the Edge
-
-
-
(555)
Deferred income on acquisition of d-wise
-
-
-
(4,230)
Deferred income on acquisition of PDS
-
-
-
(708)
Amounts recoverable on contracts on acquisition of d-wise
-
-
551
-
Amounts recoverable on contracts on acquisition of PDS
-
-
9
-
Cash received in advance of performance and not recognised
as revenue during the period
-
(22,745)
-
(13,442)
Excess of revenue recognised over cash being recognised
during the period
2,494
-
1,480
-
At 31 December
2,494
(22,745)
2,040
(18,935)
7 2
2. 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 )
a. Contract Balances (continued)
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.
b. Remaining performance obligations
The 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.
Additionally, the Group applies the practical expedient in paragraph 121 (b) and does not need to disclose the
information for a performance obligation as the Group recognises revenue from the satisfaction of the performance
obligation in accordance with paragraph B16.
The following table details the value of future contracted revenue resulting from the Group’s fixed price long term
contracts which is yet to be recognised in the income statement due to the relevant contractual performance obligations
not being satisfied before the year end. The majority of these performance obligations are unbilled at the Balance Sheet
date and therefore not reflected in these accounts.
The amount of revenue that will be recognised in future periods on these contracts is as follows:
Less than 1 year
£000
Between 1 and 2 years
£000
Greater than 2 years
£000
Revenue expected to be recognised
6,966
5,041
2,546
c. Contract Costs
It is expected that commissions paid are recoverable. These have therefore been capitalised as an asset and are It is
expected that commissions paid are not recoverable. These have therefore not been capitalised as an asset.
As of 31 December 2022, the carrying value of costs to obtain contracts which have been capitalised is the amount of
£nil (2021: £nil). Amortisation of £nil (2021: £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 3
3. O P E R AT 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
2022
£000
2021
£000
Profit from operations includes the following significant items:
Depreciation and amounts written off property, plant and equipment - owned assets
340
312
Amortisation of intangible assets
3,049
2,414
Depreciation of right to use assets
967
945
Research and development costs
i.
4,448
2,623
Short life lease expenses
126
159
Impairment of goodwill
107
-
i. Research and development cost – relate to internal research and development costs which were not capitalised as at 31 December 2022.
2022
£000
2021
£000
Amounts payable to PKF Littlejohn LLP and the previous auditors Grant Thornton
UK LLP with their associates in respect of both audit and non-audit services
Current year fees payable to the Group’s auditors:
for the audit of the Parent Company and consolidated financial statements
275
257
Additional audit fees paid to previous auditors in relation to prior year audit
56
-
Non-audit services:
Taxation services - Compliance
-
27
Taxation services - Advisory
-
6
331
290
In January 2023, the Group announced the appointment of PKF Littlejohn LLP as Instem’s independent auditor of the
parent company and the consolidated financial statements for the year ended 31 December 2022.
PKF Littlejohn LLP did not provide any non-audit services to the Group for the year ended 31 December 22.
The following tables analyse employee benefits operating expense and other expenses:
2022
£000
2021
£000
Employee benefits expense
Staff costs (see note 7)
31,475
24,759
Share based payments (note 10)
1,377
889
Health and life insurance
1,569
1,233
Other benefits
16
37
34,437
26,918
Other expenses
Software maintenance charges
2,066
1,379
Licence costs
2,594
1,716
Third party costs
2,294
2,076
Other expenses (excluding net impairment (gain/loss on financial assets)
6,822
5,320
13,776
10,491
7 4
4. N O N - R E C U R R I N G I T E M S
NON RECURRING COST
2022
£000
2021
£000
Legal costs and increase in provision for the final settlement relating to historical contract dispute
1,129
95
Acquisition costs
79
1,019
Share based payments
-
172
1,208
1,286
NON RECURRING INCOME
2022
£000
2021
£000
US government loans forgiven
-
805
Insurance proceeds relating to historical contract dispute
401
-
401
805
Non recurring costs in the year include acquisition costs of £0.08m (2021: £1.0m) relating to the additional costs in
regards to the earn out consideration of the Edge and d-Wise.
The non-recurring items includes the additional provision of €1.2m (£1.02m) for full and final settlement regarding
a historical contractual licence dispute that arose in 2017. As previously announced Instem had already created
provision of £0.25m in respect of this dispute in the previous years. In October 2022, Instem paid €1.48m (£1.3m), of
which its insurer agreed to contribute €0.45m (£0.4m) resulting in a net payment due of approx. €1.0m (£0.9m). The
insurance contribution of €0.45m (£0.4m) was included in the non-recurring income.
5. F I N A N C E I N C O M E
2022
£000
2021
£000
Right of use asset interest income
5
6
Other interest
86
24
Foreign exchange gains
932
-
1,023
30
6. F I N A N C E C O S T S
2022
£000
2021
£000
Loans and overdrafts
266
85
Unwinding discount on deferred consideration
771
867
Net interest charge on pension scheme
36
51
Right of use asset interest cost
70
97
Foreign exchange losses
-
44
1,143
1,144
7 5
7. E M P L O Y E E S
Group
2022
Number
2021
Number
Average monthly number (including non-executive directors)
By role:
Directors, administration and supervision
76
55
Software design, sales and customer service
417
381
493
436
2022
£000
2021
£000
Employment costs:
Wages and salaries
27,176
21,485
Social security costs
2,402
1,858
Other pension costs
1,897
1,416
31,475
24,759
Company
2022
Number
2021
Number
Average monthly number (including non-executive directors)
By role:
Non-executive directors
4
3
Employment costs:
Wages and salaries
174
141
Social security costs
16
15
190
156
7 6
8. D I R E C T O R S ' E M O L U M E N T S
2022
£000
2021
£000
Amounts payable by Instem plc:
Emoluments
174
141
Amounts payable by subsidiary companies:
Emoluments
423
412
Defined contribution pension contributions
43
38
Total emoluments
466
450
2022
Number
2021
Number
Number of directors to whom post-employment benefits are accruing under:
Defined contribution schemes
2
2
The remuneration of the highest paid director during the year ended 31 December 2022 was £300,000 (2021: £289,000).
Directors’ remuneration analysed by director is shown on page 35.
For further details on key management compensation refer to note 31.
9. L E A S E S
Lease liabilities are presented in the statement of financial position as follows:
2022
£000
2021
£000
Current
814
1,077
Non current
491
1,248
1,305
2,325
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 vehicle. The vehicle lease comprises only fixed
payments over the lease term. With the exception of short term leases and leases of low value underlying assets, each
lease is reflected on the balance sheet as a right of use asset and a lease liability.
In 2022, the lease equipment expired and the Group has opted to continue leasing the equipment under the current
terms, but the contract can terminated by either parties with a 2 month notice period. Therefore, the lease equipment
qualifies as a short term lease after the expiration of the lease agreement and all the cost has been recorded in the
consolidated statement of comprehensive income.
Additionally, during 2022 three office leases expired in which only one of the three was renewed for less than one year.
Therefore that lease qualified as a short term lease.
Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to
another party, the right of use asset can only be used by the Group. Leases are either non cancellable or may only be
cancelled by incurring a termination fee. Some leases contain an option to extend the lease for a further term. For
office leases the Group must keep those properties in a good state of repair and return the properties in their original
condition at the end of the lease.
7 7
9. L E A S E S ( C O N T I N U E D )
The table below describes the nature of the Groups leasing activities by type of right of use asset recognised on the
balance sheet:
Right of use assets
No of right
of use assets
leased
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
Office buildings
11
1.6 years
10
0
1
1
Vehicles
1
0.9 years
0
0
0
0
Right of use assets
Land & buildings
£000
Motor vehicles
£000
Equipment
£000
Total
£000
As at 1 January 2021
1,711
30
-
1,741
Additions
261
-
-
261
Acquisitions
539
-
410
949
Restoration costs
70
-
-
70
Depreciation
(686)
(10)
(249)
(945)
Exchange adjustment
(5)
-
6
1
As at 31 December 2021
1,890
20
167
2,077
Additions
-
-
-
-
Lease modification and remeasurement
(20)
-
(61)
(81)
Depreciation
(843)
(10)
(113)
(967)
Exchange adjustment
84
-
7
91
As at 31 December 2022
1,111
10
-
1,120
Lease liabilities
Land & buildings
£000
Motor vehicles
£000
Equipment
£000
Total
£000
As at 1 January 2021
2,053
31
-
2,084
Additions
261
-
-
261
Acquisitions
539
-
410
949
Interest expense
84
1
11
96
Lease payments
(795)
(11)
(253)
(1,059)
Exchange adjustment
(9)
-
3
(6)
As at 31 December 2021
2,133
21
171
2,325
Lease modifications
(20)
-
(63)
(83)
Interest expense
67
1
2
70
Lease payments
(998)
(11)
(87)
(1,096)
Exchange adjustment
112
-
(23)
89
As at 31 December 2022
1,294
11
-
1,305
7 8
9. 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
Land & buildings
£000
Motor vehicles
£000
Equipment
£000
Total
£000
Interest expenses
83
1
12
96
Payment of lease liabilities
712
10
241
963
At 31 December 2021
795
11
253
1,059
Interest expenses
67
1
2
70
Payment of lease liabilities
931
10
85
1,026
As at 31 December 2022
998
11
87
1,096
Lease liability maturity analysis:
As at 31 December 2021
1 year or less
£000
2 to 5 years
£000
After five years
£000
Total
£000
Lease liabilities
1,077
1,229
19
2,325
As at 31 December 2022
1 year or less
£000
2 to 5 years
£000
After five years
£000
Total
£000
Lease liabilities
814
491
0
1,305
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:
2022
£000
2021
£000
Expenses relating to short-term leases
126
159
Low value lease expense
35
81
Interest expense
70
96
Amortisation of right of use assets
967
945
At 31 December 2022, the Group was committed to short term leases and the total commitment at that date was
£0.07m.
The total cash outflow for leases in 2022 was £1.0m (2021: £1.0m).
7 9
9. 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 2022 and 31
December 2021 are as follows:
£000
As at 1 January 2021
169
Interest earned
6
Less: Rental income received
(46)
Exchange adjustment
-
At 31 December 2021
129
Interest earned
5
Less: Rental income received
(53)
Exchange adjustment
14
At 31 December 2022
95
Minimum undiscounted lease payments receivable are as follows:
2022
£000
2021
£000
Within 1 year
56
49
Between 1 and 2 years
43
50
Between 2 and 3 years
-
34
Between 3 and 4 years
-
-
Later than 5 years
-
-
99
133
Reconciliation of minimum undiscounted lease payments to net investment in the lease:
2022
£000
2021
£000
Total minimum undiscounted lease payments receivable
99
133
Unearned finance income
(4)
(4)
Net investment in the lease
95
129
8 0
9. L E A S E S ( C O N T I N U E D )
Finance lease receivable maturity analysis:
As at 31 December 2021
1 year or less
£000
2 to 5 years
£000
After five years
£000
Total
£000
Finance lease receivable
44
85
-
129
As at 31 December 2022
1 year or less
£000
2 to 5 years
£000
After five years
£000
Total
£000
Finance lease receivable
53
42
-
95
10. S H A R E B A S E D PAY 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 if certain performance criteria have been met.
There are two types of share option awards:
•
Share options awarded to all employees as part of their annual bonus, providing they have met certain annual bonus
targets, subject to continued employment (normally three years) and with no further performance conditions.
•
Share options awarded to directors and senior employees generally carry profitability (EBITDA) or market-based
performance conditions
Share options awarded to all employees
In 2020, the Group introduced the share options to all employees as part of the annual bonus award. If the employees
meet certain annual bonus targets, they are then subject to continued employment and passage of time (normally
three years) with no further performance conditions. This share option has been awarded to all employees in 2020,
2021 and 2022.
In 2022, the Group granted 64,511 of nil-cost share options to all employees subject to continued employment, passage
of time and no other performance conditions
Share options awarded to directors and senior employees
Share options issued to directors and senior employees generally carry profitability (EBITDA) or market-based
performance conditions. During 2022, the Group did not issue performance related share option awards to directors
and senior employees.
The following share awards issued to directors and senior employees that have not lapsed as of 31 December 2022
relate to:
LTIP awards prior to 2018
The share options awarded prior to 2018 have vested but not lapsed as of 31 December 2022.
2018 LTIP awards
An award under the Instem Long Term Incentive Plan (“LTIP”) was made in 2018 which entitles participants to shares
at the end of a three year performance period based on achievement against an absolute share price performance
condition. Awards are in the form of nil-cost share options.
The award is in the form of 3 tranches, with performance testing at the end of each financial year over the 3 year
performance period. A maximum of 25% of the total award vests for each of the first two tranches and a maximum of
50% vests under the third tranche. Performance is measured at the end of each financial year and if the relevant target
is not met the portion under that tranche lapses with no retesting.
The share options awarded in 2018 have vested but not lapsed as of 31 December 2022.
8 1
10. S H A R E B A S E D PAY M E N T ( C O N T I N U E D )
2020 LTIP awards
In addition to the share options awarded to all employees as part of the annual bonus in 2020, the Group awarded
directors and senior employees with LTIP awards linked to performance targets.
The performance awards vest when certain share price conditions are met. The award is in the form of 3 tranches, with
performance tested at the end of each financial year over a 3 year performance period. A maximum of 30% of the total
award vests for each of the first two tranches and a maximum of 40% vests under the third tranche. The performance
criteria for this share options award were met.
2021 LTIP award with performance target
On 1 September 2021 and 27 September 2021, the Group granted awards of nil-cost options to participating employees
which vest after three years subject to the performance conditions of either end share value or EBITDA.
The award is in the form of 3 tranches, with performance testing at the end of each financial year over the 3 year
performance period. A maximum of 30% of the total award vests for each of the first two tranches and a maximum of
40% vests under the third tranche.
2022
2021
Number
Weighted average
exercise price (£)
Number
Weighted average
exercise price (£)
Outstanding at the beginning of the year
1,548,501
0.07
1,259,102
0.11
Granted
64,511
0.00
431,479
0.01
Lapsed
(54,132)
0.00
(53,413)
0.03
Exercised
(217,500)
0.17
(88,667)
0.25
Outstanding at end of the year
1,341,380
0.06
1,548,501
0.07
Exercisable at end of year
434,351
0.18
651,851
0.17
The options outstanding at 31 December 2022 had exercise prices of £nil, £0.10 and £0.90 (2021: £nil, £0.10, £0.90,
£1.76 and £2.22) and a weighted average remaining contractual life of 5 years 11 months (2021: 7 years 1 month).
A charge of £1.377m (2021: £1.061m) arose in respect of share based payments.
The fair value of options granted in the year was £0.4m (2021: £2.6m).
During the year, the average share price in respect of share options exercised was £6.51 (2021: £7.90)
In 2022, the Group granted 64,511 of nil-cost share options to all employees subject to continued employment, passage
of time and no other performance conditions. The fair market value of the share options have been estimated using the
market price of Instem’s shares at the grant date.
In 2021, the Group granted new options for 431,479 shares. 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)
1.8
2.7
3.0
3.0
Share price at grant date
£5.78
£6.63
£8.38
£9.00
Exercise price
Nil
Nil
Nil
Nil
Dividend yield
0.00%
0.00%
0.00%
0.00%
Risk free rate
NA
NA
0.2%
0.4%
Volatility
NA
NA
29%
29%
Fair value of options (average)
5.70
6.63
5.86
6.92
8 2
11. TA X AT I O N
Income taxes recognised in profit or loss:
2022
£000
2021
£000
Current tax:
UK corporation tax in respect of previous years
(614)
(268)
Adjustments in respect of R&D tax credit
42
351
Foreign tax
(1,793)
(1,111)
Foreign tax in respect of previous years
428
(54)
Total current tax charge
(1,937)
(1,082)
Deferred tax:
Current year charge
419
(147)
Adjustment in respect of previous years
883
575
Defined benefit liability
(141)
(91)
Impact of rate change
-
(560)
Total deferred tax credit/(charge)
1,161
(223)
Total income tax charge recognised in the current year
(776)
(1,306)
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 the financial statements as a change from 19% to 25% on deferred tax.
8 3
11. TA X AT 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:
2022
£000
2021
£000
Profit before tax
5,473
2,984
Profit before tax multiplied by standard rate of corporation tax in the UK 19.0% (2021: 19.0%)
(1,040)
(567)
Effects of:
Expenses not allowable for tax purposes
465
(278)
Enhanced R&D tax relief
325
341
Losses surrendered for R&D tax credit
(55)
(460)
R&D tax credit accrual
124
408
Tax losses not previously recognised
(732)
(137)
Difference in tax rates on timing differences
55
-
Adjustments in respect of prior years
696
252
Impact of change in tax rate
-
(560)
Overseas withholding taxes and double tax relief
(513)
(36)
Difference in overseas tax rates
(101)
(269)
Total income tax charge recognised in consolidated statement of comprehensive income
(776)
(1,306)
8 4
12. I N TA N G I B L E A S S E T S
Group
Goodwill
£000
Software
£000
Intellectual
property
£000
Customer
relationships
£000
Brand
Names
£000
Patents
£000
Total
£000
Cost
At 1 January 2021
12,658
9,413
5,712
3,138
380
21
31,322
Additions
-
2,238
-
-
-
-
2,238
Acquisitions
24,444
-
4,010
10,691
1,392
-
40,537
Exchange adjustment
-
(71)
-
-
-
-
(71)
At 31 December 2021
37,102
11,580
9,722
13,829
1,772
21
74,026
Additions
51
3,036
-
-
-
-
3,087
Exchange adjustment
-
128
-
-
-
-
128
At 31 December 2022
37,153
14,744
9,722
13,829
1,772
21
77,241
At 1 January 2021
2,482
5,142
3,795
1,830
29
21
13,299
Amortisation expense
-
851
663
777
123
-
2,414
Exchange adjustment
-
2
-
-
-
-
2
At 31 December 2021
2,482
5,995
4,458
2,607
152
21
15,715
Amortisation expense
-
1,096
717
1,053
183
-
3,049
Impairment charge on
goodwill
107
-
-
-
-
-
107
Exchange adjustment
-
29
-
-
-
-
29
At 31 December 2022
2,589
7,120
5,175
3,660
335
21
18,900
Net book value
At 31 December 2020
10,176
4,271
1,917
1,308
351
-
18,023
At 31 December 2021
34,620
5,585
5,264
11,222
1,620
-
58,311
At 31 December 2022
34,564
7,624
4,547
10,169
1,437
-
58,341
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally
acquired elements. The cost of internally generated software amounts to £13.9m (2021: £10.8m) with accumulated
amortisation of £5.7m (2021: £4.5m). Software additions for the year include £3.0m relating to internal development
(2021: £2.2m).
The amortisation of software is included in “amortisation of internally generated intangibles” and the amortisation of
acquired intangibles is included in “amortisation of intangibles arising on acquisitions”.
The increase of the gross carrying amount of goodwill in 2022 relates to a change in d-Wise contingent consideration
paid. As per the share purchase agreement, any of d-Wise accounts receivables which were not included in the closing
working capital, but were subsequently collected by d-Wise during the twelve month period following the date of final
determination of closing working capital have been added and paid in the first deferred payment. As the changes in
the fair value of the contingent consideration qualified within the measurement period adjustments of twelve months
then the amount of £0.05m was adjusted retrospectively with corresponding adjustments against goodwill and cost
of investments.
An impairment loss of £0.11m was recognised on goodwill for Samarind which is part of the Regulatory Solutions
business segment. The fair value less cost to sell method was used to calculate the recoverable amount as the recoverable
amount is the higher between value in use and FV less cost to sell method.
8 5
12. I N TA N G I B L E A S S E T S ( C O N T I N U E D )
Identification of the Cash Generating Units (CGUs)
In 2022 and in previous years, the CGUs have been based on the Group's legal structure. The assessment has been
performed at the legal entity level given the significant amount of judgement in assessing what level the cashflows are
independent of each other.
However, in 2023 we are considering restructuring of the CGUs in response to the ongoing changes of the Group's
internal and external activities. We expect that the CGU composition will move in line with the operating segments
as the operations of the Group will become even more integrated due to the current year’s reorganizational changes.
Gross carrying amount of goodwill
In 2022, 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.
The 10 CGUs identified in 2021 for impairment purposes were Instem LSS Limited Group, Instem Scientific Limited,
Perceptive Instruments Limited, Samarind Limited, Notocord SA, Leadscope Inc, Instem Clinical Holdings Limited,
the Edge Consultancy Limited, d-Wise Technologies Inc and PDS Pathology Data Systems Limited.
In 2022, PDS Pathology Data Systems Limited has been fully integrated within the Group’s existing product entities
therefore we were unable to identify the forecast cash flow for PDS only. As a result, in 2022 we identified the 9
CGUs as Instem LSS Limited & PDS Pathology, Instem Scientific Limited, Perceptive Instruments Limited, Samarind
Limited, Notocord SA, Leadscope Inc, Instem Clinical Holdings Limited, the Edge Consultancy Limited,and d-Wise
Technologies Inc.
The allocation of goodwill to CGUs is as follows:
2022
£000
2021
£000
Acquisition date
Instem LSS Limited
13,266
5,858
27 March 2002
PDS Pathology Data Systems Ltd
7,408
1 September 2021
Instem Scientific Limited
498
498
3 March 2011
Perceptive Instruments Limited
669
669
21 November 2013
Samarind Limited
487
594
27 May 2016
Notocord SA
489
489
2 September 2016
Leadscope Inc
2,068
2,068
15 November 2019
Instem Clinical Holdings Limited
-
-
The Edge Software Consultancy Ltd
3,927
3,927
1 March 2021
d-Wise Technologies, Inc
13,109
13,109
1 April 2021
34,564
34,620
The Goodwill related to a CGU, being Instem Clinical Holdings Limited, was fully impaired in 2019.
An impairment loss of £0.11m was recognised on goodwill for Samarind CGU; please refer below for further details.
Impairment testing
The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired.
8 6
12. I N TA N G I B L E A S S E T S ( C O N T I N U E D )
Key assumptions
The recoverable amounts of the CGUs are determined from value-in-use calculations and the fair value less cost to
sell method.
The key assumptions for the value in use calculations are those regarding discount rates, growth rates, margins and
cashflows.
Additionally, the key assumption for the FV less cost to sell method is the sales multiple and price increase applied,
which was based on market activity at the time.
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 weighted
average WACCs based on revenue has been used.
After performing further sensitivity analysis, management approved the use of the different pre-tax WACC across the
the 9 CGUs:
CGUs
Pre-tax WACC
Instem LSS and PDS Pathology
19.0%
Instem Scientific Limited
16.7%
Perceptive Instruments Limited
19.1%
Samarind Limited
18.3%
Notocord SA
19.1%
Leadscope Inc
16.7%
Instem Clinical Holdings Limited
19.1%
The Edge Software Consultancy Ltd
19.1%
d-Wise Technologies, Inc
17.7%
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 2023 and then forecast up to 2027 based on growth rates of each
operating segment.
Where a CGU operates in multiple operating segments a weighted average was used based on the current year’s
revenue for the relevant CGUs average growth rate. The growth rates that have been applied were:
CGUs
2024
2025
2026 and 2027
Instem LSS and PDS Pathology
10.2%
8.4%
8.5%
Instem Scientific Limited
15.0%
20.0%
25.0%
Perceptive Instruments Limited
10.0%
8.0%
8.0%
Samarind Limited
10.0%
8.0%
8.0%
Notocord SA
10.0%
8.0%
8.0%
Leadscope Inc
15.0%
20.0%
25.0%
Instem Clinical Holdings Limited
10.0%
8.0%
8.0%
The Edge Software Consultancy Ltd
10.0%
8.0%
8.0%
d-Wise Technologies, Inc
10.0%
12.0%
12.0%
8 7
12. I N TA N G I B L E A S S E T S ( C O N T I N U E D )
In 2021 the growth that has been applied was 8.8% for LSS and PDS, 15% for Instem Scientific and Leadscope, 7.5%
for Perceptive Instruments, 5% for Notocord SA, 5% Instem Clinical Holdings Limited , 10% for Samarind and 10%
for The Edge and d-Wise businesses.
For the perpetuity calculation (2028 and onwards) a 3.3%, growth rate was applied to all CGUs which management
estimates as reasonable considering the current inflation rate, payroll and other cost base increases (2021: 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 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 and reduction in forecast revenues. 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
Instem LSS and PDS
345%
41%
20%
Instem Scientific Limited
232%
15%
6%
Perceptive Instruments Limited
203%
17%
11%
Samarind Limited
-
-
-
Notocord SA
-
-
-
Leadscope Inc
543%
52%
41%
Instem Clinical Holdings Limited
-
-
-
The Edge Software Consultancy Ltd
181%
14%
26%
d-wise Technologies, Inc
181%
12%
11%
The value in use calculations are reliant on the accuracy of management’s forecast and the assumptions that underlie
them as well as the discount rate and growth rates applied.
The recoverable amount of the Instem Clinical, Samarind and Notocord CGUs using the value-in-use calculation
did not exceed the carrying amount of these CGUs. However, using the FV less cost to sell method to calculate
the recoverable amount shows that the recoverable amount is more than the carrying amount for Instem Clinical
and Notocord CGUs. As per IAS 36, the recoverable amount is the higher between value in use and FV less cost to
sell method which means that there was no impairment charge required for both CGUs. The Goodwill related to a
CGU, being Instem Clinical Holdings Limited, was fully impaired in 2019 therefore the CGU is not sensitive to any
assumptions.
The key assumptions for the FV less cost to sell method were:
- the sales multiple applied,
- revenue lines which the sales multiple was applied and,
- the price rate increase.
Instem plc is a financial instrument categorised in Level 1 as it is traded on the AIM Market. However, Notocord SA
and Clinical Limited which are direct subsidiaries of Instem plc are not traded in an active market. Both CGUs are
included within the Study Management opearating segments.
8 8
12. I N TA N G I B L E A S S E T S ( C O N T I N U E D )
As per IFRS 13 inputs other than quoted prices included within Level 1 that are observable for the assets either directly
or indirectly are categorised in Level 2. Therefore, level 2 sales values of Notocord SA and Clinical Limited have been
derived using the sales multiple comparison approach with other entities within the same operating segment of the
Study Management. Management compared the sales multiples for Instem plc against similar entities within the same
operating segment and decided to use 3.2 sales multiples on recurring revenue which is lower than the sales multiple
calculated for Instem plc and the average of the entities included in the Study Management segment.
Additionally, for the FV less cost to sell method management decided to exclude from the model any non-recurring
revenue. Therefore, for calculating the recoverable amount management took into consideration only annual support
and SaaS subscription and support in the FV less cost to sell model. Any other revenue types have been removed for
the valuation assessment. Management also included a 6% price rate increase in the FV less cost to sell model which
was lower than global inflationary pressures.
The table below shows the headroom for the key assumption on which Management has based its determination of
the unit’s recoverable amount:
Recoverable amount exceeds the
carrying amount
£000
Sales multiple that would cause
carrying amount to exceed the
recoverable amount
Price rate increase that would
cause carrying amount to exceed
the recoverable amount
Notocord SA
18
3.17
5.2%
Instem Clinical Holdings Limited
829
N/a
N/a
The table below shows the headroom of recoverable amount over the carrying amount, sensitivities in the sales
multiples and price increase. 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 sales
multiple rate
Sensitivity of the CGUs on price
increase rate
Notocord SA
101%
1%
1%
Instem Clinical Holdings Limited
N/a
N/a
N/a
On 1 April 2023, Instem completed the transaction and disposed Samarind Limited which is part of the Regulatory
Solutions business segment. The consideration receivable is up to £1.0m, of which £0.8m is satisfied by cash receipt
on completion plus or minus estimated net cash and the remaining £0.2m payable contingent on Samarind Limited
future performance payable in cash. The offer price was used for the impairment testing.
Therefore, using the net realisable value calculations based on sales multiples the Group concluded a goodwill
impairment of £0.11m should be recognised in 2022 in relation to Samarind Limited.
Review of carrying value of goodwill
Following the review of the carrying value of goodwill as at 31 December 2022, 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 2022 except for Samarind Limited.
As of 31 December 2021, the recoverable amount for each of the CGUs was measured using the value in use calculation.
The key assumptions used for the value in use calculations were those regarding discount rates, growth rates, margins
and cashflows. In 2021, 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. However, PDS, Instem Scientific, Notocord and
Samarind CGUs were highlighted as sensitive to increases in discount rate and fall in revenue growth rates.
The value in use calculations are reliant on the accuracy of management’s forecast and the assumptions that underlie
them as well as the discount rate and growth rates applied.
Other intangible assets
As of 31 December 2022 and 2021, there were no indications that any other intangible assets may be impaired.
8 9
13. 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
£000
At 1 January 2021
29,422
Additions
20,576
At 31 December 2021
49,998
Additions
17,893
At 31 December 2022
67,891
Provisions for impairment
£000
At 1 January 2021
2,802
Addition
8
At 31 December 2021
2,810
Impairment charge
1,357
At 31 December 2022
4,167
Carrying value
£000
At 31 December 2021
47,188
At 31 December 2022
63,724
In December 2022, Instem Life Science Systems Limited (ILSS) issued ordinary shares with a value of £4.8m to Instem
Plc in exchange for a reduction in the amount owed from ILSS to Instem Plc. The appropriate documentations were
drafted and filed with Companies House in respect of the issue of shares.
ILSS transferred its investment in Instem LSS Limited to Instem Plc at book value £11.7m in exchange for an
intercompany balance.
Finally, the amount of £1.4m relates to the share options that Instem plc awarded all employees of its subsidiaries
subject to continued employment. Instem plc received the services indirectly through subsidiary in a form of an
increased investment.
An impairment provision of £1.4m has been made in 2022 against the carrying value of the investment in Samarind
which is part of the Regulatory Solutions business segment.
The Group tests annually for impairment against investments held.
9 0
At 31 December 2022 the Group had eleven wholly-owned subsidiaries and sixteen 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
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Holding Company
100% by Instem plc
Instem LSS Limited
(company number 03548215)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Software development, sales,
sales support and administrative
support
100% by Instem plc
Instem LSS (North America) Limited
(company number 02126697)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Sales, sales support and
administrative support
100% by Instem LSS
Limited
Instem LSS (Asia) Limited
(company number 1371107)
Hong Kong
Suite 1106-8
11/F Tai Yau Building
No 181 Johnston Road
Wanchai
Holding Company
100% by Instem LSS
Limited
Instem Information Systems (Shanghai) Limited
(company number 310115400257075)
Shanghai, PRC
Room 218, Building 3
No. 690 Bibo Road
Zhanjiang High Tech Park
Pudong District
Shanghai
201203
Sales, sales support and service
100% by Instem LSS (Asia)
Limited
Instem Scientific Limited
(company number 03861669)
England and Wales
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
Instem Scientific Solutions Limited
(company number 03598020)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Dormant
100% by Instem Scientific
Limited
Instem Scientific Inc.
USA
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
Software development
99.9% by Instem LSS
Limited
0.1% by Instem LSS (NA)
Limited
Instem Clinical Holdings Limited
(company number 05840032)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Holding of intellectual property
rights and investment in group
companies
100% by Instem plc
Instem Clinical Limited
(company number 06959053)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Provision of electronic data
capture and clinical management
solutions to the pharmaceutical
industry
100% by Instem Clinical
Holdings Limited
Instem Clinical Inc.
USA
Suite 1550
161 Washington Street
8 Tower Bridge
Conshohocken PA 19428
Provision of electronic data
capture and clinical management
solutions to the pharmaceutical
industry
100% by Instem Clinical
Holdings Limited
Perceptive Instruments Limited
(company number 02498351)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Development, manufacture and
supply of software and hardware
products for in vitro study data
collection and study management
in the genetic toxicology,
microbiology and immunology
markets
100% by Instem plc
13. 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 )
9 1
13. 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 Japan K.K
(company number 0104-01-120355)
Japan
Shinagawa
Intercity Tower, A Level 28
2-15-1 Konan, Minato-ku
Tokyo 108-6028
Sales, sales support and
service
100% by Instem LSS Limited
Leadscope Inc.
USA
1393 Dublin Road
Columbus
Ohio 43215
Leading provider of in-silico
safety assessment software
100% Instem Scientific Inc
Samarind Limited
(company number 02105894)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Provider of regulatory
information management
software
100% by Instem plc
Notocord Systems S.A.
(company number 350927349)
France
Parc des Grillons
60, route de Sartrouville
78230 Le Pecq
Paris
Software development, sales
support and administrative
support
100% by Instem plc
Notocord Inc.
USA
PO Box 10188
Newark
New Jersey
07101-3188
Sales, sales support and
administrative support
100% by Notocord Systems
S.A.
The Edge Software Consultancy Limited
(company number 05400315)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Software development,
sales, sales support and
consultancy activities
100% by Instem plc
d-wise Technologies UK Limited
(company number 07352898)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Software development,
sales, sales support and
consultancy activities on
clinical trial analysis
100% by Instem plc
Instem Inc
USA
300 Creek View Road
Suite 209
Newark
DE 19711
Holding Company
100% by Instem plc
d-wise Technologies Inc
USA
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
Software development,
sales, sales support and
consultancy activities on
clinical trial analysis
100% by d-wise Technologies
Inc
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
100% by d-wise Technologies
Inc
Pathology Data Systems AG
Switzerland
Duerrenhuebelstrasse 9
CH-4133 Pratteln, Basel,
Switzerland
Software development, sales,
sales support and provider
of regulatory information
management software
100% by Instem plc
Preclinical Data Systems, Inc.
USA
100 Valley Road,
Suite 204
Mt. Arlington,
New Jersey
07856
Software development
100% by Pathology Data
Systems AG
Pathology Data Systems Ltd
Japan Branch
Japan
3-5-1 Aoihigashi
Naka-ku,
Hamamatsu – shi
Shizuoka Prefecture
433-8114
Japan
Software development
100% by Pathology Data
Systems AG
9 2
14. P R O P E R T Y, P L A N T A N D E Q U I P M E N T
Group
Short leasehold property
£000
IT hardware & software
£000
Total
£000
Cost
At 1 January 2021
82
1,764
1,846
Additions
-
144
144
Disposals
-
(255)
(255)
Acquisition
-
525
525
Exchange adjustment
(2)
35
33
At 31 December 2021
80
2,213
2,293
Additions
-
478
478
Disposals
-
(58)
(58)
Exchange adjustment
3
234
237
At 31 December 2022
83
2,867
2,950
Depreciation
At 1 January 2021
49
1,559
1,608
Depreciation expense
13
299
312
Disposals
-
(247)
(247)
Exchange adjustment
(1)
29
28
At 31 December 2021
61
1,640
1,701
Depreciation expense
9
331
340
Disposals
-
(55)
(55)
Exchange adjustment
3
193
196
At 31 December 2022
73
2,109
2,182
Net book value
At 31 December 2020
33
205
238
At 31 December 2021
19
573
592
At 31 December 2022
10
758
768
A review of the useful life for fixed assets has been performed in regard to climate change and environmental
regulations as known at the reporting date and which has not identified any significant impact to the Group’s carrying
amounts of property, plant and equipment.
9 3
15. I N V E N T O R I E S
Group
2022
£000
2021
£000
Work in progress
76
64
76
64
2022
£000
2021
£000
Total gross inventories
76
64
The inventory mainly consists of high-quality industrial-standard cameras and associated hardware for the Instem
Sorcerer Colony Counter product.
In 2022, a total of £0.02m (2021: £0.02m) of inventory was included in profit and loss as an expense.
16. T R A D E A N D O T H E R R E C E I VA B L E S
Group
2022
£000
2021
£000
Trade receivables
13,114
11,165
Amounts recoverable on contracts
2,494
2,040
Prepayments and other receivables
2,737
1,647
18,345
14,852
Company
Amounts owed by group companies
25,344
20,156
Other receivables
126
166
25,470
20,322
All amounts are short-term. The net carrying value of trade receivables is considered a reasonable approximation of
fair value.
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:
2022
£000
2021
£000
Group
At beginning of year
502
144
Increase in provision for impairment
235
391
Reversal of provision for impairment
(431)
(35)
Amounts used during the year
(34)
-
Foreign exchange adjustment
3
2
At end of year
275
502
The net reversal of last year’s impairment charge on financial assets was £0.2m (2021: net impairment loss £0.4m)
9 4
16. T R A D E A N D O T H E R R E C E I VA B L E S ( C O N T I N U E D )
Definition of default
A loss allowance on all financial assets is measured by considering the probability of default.
Receivables are considered to be in default based on an assessment of past payment practices over a 5 year period prior
to 31 December 2022 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 (2021:
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 75 days (2021: 77 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 the 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 charged a provision of £0.2m for amounts owed by
group companies (2021: reversed a provision of £0.02m). The amount of the provision was £0.4m as of 31 December
2022 (2021: £0.2m).
The age profile of the net trade receivables for the Group at the year-end was as follows:
Debt age
Group
2022
Current
0-30 days
31-60 days
Over 60
days
Total
Trade receivables/Amounts recoverable on contracts
Value (£000)
12,170
2,270
649
519
15,608
%
78
15
4
3
100
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
851
1,029
13,205
%
75
11
6
8
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.
9 5
17. C A S H A N D C A S H E Q U I VA L E N T S
Group
2022
£000
2021
£000
Cash at bank
13,964
24,019
Bank overdraft
-
(8,998)
13,964
15,021
Company
Cash at bank
22
3,294
The Group signed a new financing arrangement with HSBC UK Bank plc in April 2022, which consists of a committed
facility of £10.0m for general corporate purposes, 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.
The cash and cash equivalents in the 2021 statement of financial position includes a bank overdraft of £9.0m with
NatWest Bank plc. The bank overdraft was secured by fixed and floating charges over certain Group assets and was
repayable on demand. An offset position was reported as the Group had a legal right to offset any settlement would
be on a net basis.
During 2022, the Group settled the bank overdraft balance of £9.0m with former bankers NatWest Bank plc prior to
entering into the new financing arrangement with HSBC UK Bank plc.
An analysis of cash and cash equivalents by currency is as follows:
Group
2022
£000
2021
£000
Sterling
1,459
1,476
Euro
589
1,188
US Dollar
8,078
6,515
Renminbi
3,181
3,535
Swiss Franc
346
1,646
Other
311
661
13,964
15,021
Company
Sterling
22
3,294
22
3,294
The carrying amount of these assets approximates to their fair value.
9 6
18. T R A D E A N D O T H E R PAYA B L E S
2022
£000
2021
£000
Group - Current
Trade payables
2,232
1,522
Other taxation and social security costs
641
686
Accruals
2,454
3,515
5,327
5,723
2022
£000
2021
£000
Company - Current
Trade payables
180
275
Amounts owed to group companies
27,242
15,921
Accruals
472
436
27,894
16,632
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their
short maturities.
19. D E F E R R E D I N C O M E
2022
£000
2021
£000
Consideration received from customers in advance of work being completed
plus maintenance and support which is invoiced in advance
22,745
18,935
9 7
20. 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
2022
£000
2021
£000
Deferred consideration
3,605
4,276
Contingent consideration
2,160
2,336
Current liability
5,765
6,612
2022
£000
2021
£000
Deferred consideration
-
3,060
Contingent consideration
-
1,668
Non current liability
-
4,728
Company
2022
£000
2021
£000
Deferred consideration
-
1,218
Contingent consideration
965
904
Current liability
965
2,122
2022
£000
2021
£000
Contingent consideration
-
757
Non current liability
-
757
As of 31 December 2022, the contingent consideration included in the Group is in respect of the acquisition of The
Edge and d-Wise which were purchased on 1 March 2021 and 1 April 2021 respectively.
As of 31 December 2022, the deferred consideration above is in respect of the acquisitions of The Edge and d-Wise.
The PDS deferred consideration was fully paid in September 2022.
The financial liability maturity analysis is disclosed in the table below.
2022
1 year or less
£000
1 to 2 years
£000
2 to 5 years
£000
Total
£000
Deferred consideration
3,605
-
-
3,605
Contingent consideration
2,160
-
-
2,160
5,765
-
-
5,765
2021
1 year or less
£000
1 to 2 years
£000
2 to 5 years
£000
Total
£000
Deferred consideration
4,276
3,060
-
7,336
Contingent consideration
2,336
1,668
-
4,004
6,612
4,728
-
11,340
9 8
21. F I N A N C I A L I N S T R U M E N T S
Risk management objectives and policies
The Group is exposed to various risks in relation to financial instruments. The main types of risks are credit risk,
liquidity risk and market risk.
The Group’s risk management is coordinated at its headquarters, in close cooperation with the board of directors, and
focuses on actively securing the Group’s short to medium-term cash flows.
The Group does not engage in the trading of its financial assets and the most significant financial risks to which the
Group is exposed are described below.
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).
2022
Group and Company
Carrying amount
£000
Fair value
£000
Level 3
£000
Contingent consideration
2,160
2,160
2,160
2021
Group and Company
Carrying amount
£000
Fair value
£000
Level 3
£000
Contingent consideration
4,004
4,004
4,004
Measurement of fair value of financial instruments
The following valuation technique is used for instruments categorised as Level 3:
Contingent consideration (Level 3)
As of 31 December 2022, the fair value of contingent consideration related to the acquisitions of The Edge and d-Wise
which were acquired in March 2021 and April 2021 respectively. The contingent considerations were estimated using
a present value technique.
The Edge’s contingent consideration of £1.0m 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 £1.0m and reflect management’s estimate of a 100% probability that the Edge’s target level of profitability will be
achieved. The profitability target was confirmed during the period.
Finally, d-Wise’s contingent consideration of US$1.4m (£1.2m) 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 US$1.5m (£1.2m) and reflect management’s estimate of a 100% probability that d-Wise’s target
level of profitability will be achieved. The profitability target was confirmed during the period.
9 9
21. F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
The reconciliation of the carrying amounts of financial instruments classified as Level 3 is as follows:
2022
£000
2021
£000
Balance as at 1 January
4,004
316
Arising on business combination
-
3,026
Payment of contingent consideration (including cash and shares)
(2,648)
-
Unwinding discount
542
658
Foreign exchange
262
4
Balance as at 31 December
2,160
4,004
The Group is exposed to various risks in relation to financial instruments. Each of these is disclosed in the table below.
Carrying
amount
2022
£000
Fair value
2022
£000
Level 3
2022
£000
Carrying
amount
2021
£000
Fair value
2021
£000
Level 3
2021
£000
Loans and receivables
Cash and cash equivalents
13,964
13,964
-
15,021
15,021
-
Trade and other receivables
18,345
18,345
-
14,852
14,852
-
Financial assets measured at amortised cost
32,309
32,309
-
29,873
29,873
-
Financial assets measured at fair value
-
-
-
-
-
-
Total financial assets
32,309
32,309
-
29,873
29,873
-
Financial liabilities measured at amortised cost
Trade payables and accruals
(4,686)
(4,686)
-
(5,037)
(5,037)
-
Financial liabilities measured at amortised cost
(4,686)
(4,686)
-
(5,037)
(5,037)
-
Deferred consideration
(3,605)
(3,605)
-
(7,336)
(7,336)
-
Contingent consideration
(2,160)
(2,160)
(2,160)
(4,004)
(4,004)
(4,004)
Financial liabilities measured at fair value
(5,765)
(5,765)
(2,160)
(11,340)
(11,340)
(4,004)
Total financial liabilities
(10,451)
(10,451)
(16,377)
(16,377)
Total financial instruments
21,858
21,858
13,496
13,496
1 0 0
21. F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
CREDIT RISK
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 credit risk in respect of cash balances held with banks are only with major reputable financial institutions.
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 2022
year end the Group had a maximum credit risk exposure of £18.3m (2021: £14.9m).
The amounts presented in the statement of financial position are net of impairment provisions.
The Group’s exposure to losses from defaults on trade receivables is reduced due to contractual terms which require
installation, training, annual licensing and support fees to be invoiced and paid annually in advance. Note 16 sets out
the impairment provision for credit losses on trade receivables and the ageing analysis of overdue trade receivables.
There were no impairment losses recognised on other financial assets.
The Group undertakes procedures to determine whether there has been a significant increase in the credit risk of
its other receivables, including group balances, since their initial recognition. Where these procedures identify a
significant increase in credit risk, the loss allowance is measured based on the risk of a default occurring over the
expected life of the instrument rather than considering only the default events expected within 12 months of the year-
end.
The concentration of credit risk for trade receivables at the balance sheet date by geographical region was:
2022
£000
2021
£000
UK
1,586
989
Europe
2,755
2,493
USA
7,217
6,820
China
747
194
Rest of World
809
669
13,114
11,165
1 0 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 )
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. 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. As of 31 December 2022, the borrowing facility was undrawn however the relevant
covenant calculations have been calculated and considered. The Group had positive cash reserves of £14.0m at the
2022 year end, in addition to the £10.0m undrawn working capital facility, although £3.2m 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.
2022
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
1,305
1,305
814
491
-
Trade payables
2,232
2,232
2,232
-
-
Accruals
2,454
2,454
2,454
-
-
Deferred consideration
3,605
3,605
3,605
-
-
Contingent consideration
2,160
2,160
2,160
-
-
11,756
11,756
11,265
491
-
2021
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
2,325
2,325
1,077
1,229
19
Trade payables
1,522
1,522
1,522
-
-
Accruals
4
4
4
-
-
Deferred consideration
7,336
7,336
4,276
3,060
-
Contingent consideration
4,004
4,004
2,336
1,668
-
15,191
15,191
9,215
5,957
19
1 0 2
21. F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
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 £0.7m (2021: £0.6m).
The Group’s exposure to foreign currency risk is as follows.
2022
Sterling
£000
Euro
£000
US Dollars
£000
Renminbi
£000
Swiss Franc
£000
Other
£000
Total
£000
Cash and cash equivalents
1,459
589
8,080
3,181
346
309
13,964
Trade and other receivables
3,198
1,288
10,836
2,049
347
627
18,345
Liabilities relating to right of use assets
(331)
(201)
(506)
(4)
(50)
(213)
(1,305)
Trade payables
(984)
(42)
(731)
(373)
(102)
-
(2,232)
Net exposure
3,342
1,634
17,679
4,853
541
723
28,772
2021
Sterling
£000
Euro
£000
US Dollars
£000
Renminbi
£000
Swiss Franc
£000
Other
£000
Total
£000
Cash and cash equivalents
1,476
1,188
6,515
3,535
1,646
661
15,021
Trade and other receivables
3,151
1,295
9,018
474
440
474
14,852
Liabilities relating to right of use assets
(367)
(231)
(1,166)
(27)
(100)
(435)
(2,325)
Trade payables
(841)
(23)
(651)
(1)
(6)
-
(1,522)
Net exposure
3,419
2,229
13,716
3,981
1,980
700
26,025
Interest rate risk
The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported
earnings.
As of 31 December 2022, the indications are that the UK bank base interest rate could materially change over the next
12 months. During 2022, the UK base rate increased by 3.25 percentage points to 3.5%. On the basis of the Group cash
position at 31 December 2022 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). Finally as of 31
December 2022, the Group’s 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 was undrawn.
1 0 3
22. R E C O N C I L I AT 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
Notes
Former PDS's
shareholders
£000
Lease liability
£000
Total
£000
1 January 2021
-
2,084
2,084
Cash flows
Repayment of finance cost
9
-
(96)
(96)
Repayment of lease liability
9
-
(963)
(963)
Repayment of former PDS’s shareholder loan
(2,387)
-
(2,387)
Non-cash
Intercompany balance between PDS and Instem PLC
2,387
-
2,387
Acquisitions
9
-
949
949
New leases
9
-
261
261
Interest expense
9
-
96
95
Exchange adjustment
9
-
(6)
(6)
As at 31 December 2021
-
2,325
2,325
1 January 2022
-
2,325
2,325
Cash flows
Repayment of lease liability
9
-
(1,096)
(1,096)
Non-cash
Lease modifications
9
-
(83)
(83)
Interest expense
9
-
70
70
Exchange adjustment
9
-
89
89
At 31 December 2022
-
1,305
1,305
1 0 4
23. C U R R E N T TA X AT I O N
As of 31 December 2022, the Group current tax payable was £0.3m which is the net of tax payable £1.5m and tax
receivable £1.2m balance (2021: receivable of £0.1m, net of a payable of £0.8m) representing the amount of income
tax payable and receivable in respect of the current and prior years.
The Company current tax receivable is £nil.
24. D E F E R R E D TA X B A L A N C E S
Deferred tax liabilities as at 31 December 2022
Movements
Accelerated
tax
depreciation
£000
Tax losses
£000
Defined
benefit
liability
£000
Other timing
differences
£000
Total
£000
At 1 January 2021
(691)
209
735
(343)
(90)
Foreign exchange differences
1
-
-
13
14
Credit/(charge) to profit or loss for the year
(21)
(267)
(91)
(419)
(798)
Debit to OCI for the year
-
-
(140)
-
(140)
Credit direct to equity
-
-
-
528
528
Debit to goodwill arising on acquisitions during the year
(3,400)
64
-
-
(3,336)
Adjustments in respect of prior years
-
549
-
26
575
At 31 December 2021
(4,111)
555
504
(195)
(3,247)
Foreign exchange differences
2
42
-
(20)
24
Credit/(charge) to profit or loss for the year
376
383
(141)
(339)
279
Debit to OCI for the year
-
-
140
-
140
Credit direct to equity
-
-
-
-
-
Debit to goodwill arising on acquisitions during the year
-
-
-
21
21
Adjustments in respect of prior years
8
576
-
298
882
At 31 December 2022
(3,725)
1,556
503
(235)
(1,901)
Other timing differences are predominantly related 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 2022 were £22.0m (2021: £3.0m) due to uncertainty over the
timing of the recoverability of these losses.
Tax losses and tax credits for which no deferred tax was recognised are as follows:
Gross Amount
Tax Effected
Instem
Organic
£m
d-Wise
£m
PDS
£m
Total
£m
Instem
Organic
£m
d-Wise
£m
PDS
£m
Total
£m
12
1
8
22
3
0.3
1
4.3
1 0 5
25. 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
Total each year
£000
31 March 2021
530
31 March 2022
548
31 March 2023
568
31 March 2024
588
31 March 2025
608
31 March 2026
629
30 September 2026
332
The Group currently expects to pay contributions of £518,000 in the year to 31 December 2023 as the £50,000 was
already paid in the year to 31 December 2022. The cash contributions have been considered in the future cash flow
and going concern review.
The weighted average duration of the defined benefit obligation is expected to be around 15 years.
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 0 6
25. 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 0 7
25. 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 )
2022
%
2021
%
Discount rate (pa)
4.80
1.90
Inflation (RPI pa)
3.20
3.10
Inflation (CPI pa)
2.50
2.40
Pension increase (RPI pa)
3.10
3.00
Pension increase (CPI pa)
2.10
2.00
Life Expectancy assumption (number of years from the age of 65)
Years
Years
Male currently aged 45
24.1
24.1
Female currently aged 45
26.0
26.0
Male currently aged 65
23.2
23.2
Female currently aged 65
24.9
24.9
ANALYSIS OF AMOUNT CHARGED TO FINANCE COSTS
2022
£000
2021
£000
Interest on pension scheme assets
258
177
Interest on pension scheme liabilities
(294)
(228)
Net finance cost charge
(36)
(51)
ANALYSIS OF AMOUNT RECOGNISED IN OTHER COMPREHENSIVE INCOME/
(EXPENSE)
2022
£000
2021
£000
(Losses)/ gains on assets in excess of interest
(4,443)
1,002
Experience (losses)/ gains on liabilities
(763)
118
Gains/ (losses) from changes to demographic assumptions
7
(322)
Gains from changes to financial assumptions
4,755
577
Administration services
(117)
-
Actuarial (losses)/gains recognised in other comprehensive income/(expense)
(561)
1,375
1 0 8
25. 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
2022
£000
2021
£000
Opening defined benefit obligation
15,997
16,380
Interest on liabilities
294
228
Benefits paid
(1,836)
(238)
Experience loss/(gain) on liabilities
763
(118)
Changes to demographic assumptions
(7)
322
Changes to financial assumptions
(4,755)
(577)
Closing defined benefit obligation
10,456
15,997
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
2022
£000
2021
£000
Opening plan assets
13,983
12,512
Interest on assets
258
177
Return on plan assets less interest
(4,443)
1,002
Company contributions
598
530
Administration services
(117)
-
Benefits paid
(1,836)
(238)
Closing plan assets
8,443
13,983
The actual return on assets was a negative return of £4,185,000 (2021: positive return £1,079,000).
AMOUNT RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
2022
£000
2021
£000
Present value of funded obligations
(10,456)
(15,997)
Fair value of plan assets
8,443
13,983
Net pension liability
(2,013)
(2,014)
Related deferred tax asset
503
504
Net pension liability after deferred tax
(1,510)
(1,510)
1 0 9
25. 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
2022
£000
2021
£000
Net defined benefit liability at start
2,014
3,868
Net interest expense
36
51
Remeasurements
561
(1,375)
Employer contributions
(598)
(530)
Net defined benefit liability at end
2,013
2,014
ANALYSIS OF CUMULATIVE AMOUNT RECOGNISED IN OTHER COMPREHENSIVE
INCOME/(EXPENSE)
Cumulative
2022
£000
Cumulative
2021
£000
Actual return less expected return on assets
(1,347)
3,096
Experience losses on liabilities
(2,624)
(1,861)
Changes in demographic assumptions
247
240
Changes in financial assumptions
(1,223)
(5,978)
Administration services
(117)
-
Cumulative actuarial loss recognised in the OCI
(5,064)
(4,503)
Actuarial (loss)/gain recognised in the OCI in the period
(561)
1,375
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2022
2021
£000
%
£000
%
Equities
2,815
33
6,127
44
Property
303
4
638
5
Bonds
109
1
123
1
Corporate Bonds
705
8
1,698
12
LDI
1,827
22
3,071
22
Cash
238
3
137
1
Other
2,446
29
2,189
15
8,443
100
13,983
100
1 1 0
25. 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:
2022
£000
2021
£000
2020
£000
2019
£000
2018
£000
Present value of defined benefit obligation
(10,456)
(15,997)
(16,380)
(13,773)
(12,655)
Fair value of plan assets
8,443
13,983
12,512
11,969
10,406
Deficit
(2,013)
(2,014)
(3,868)
(1,804)
(2,249)
Experience (losses)/ gains on liabilities
(763)
118
(351)
-
65
Return on plan assets less interest
(4,443)
1,002
-
1,003
(957)
The following sensitivities apply to the value placed on the liabilities:
Adjustments to assumptions
Approximate effect on liabilities
£000
DISCOUNT RATE
+ 0.50% pa
(669)
- 0.50% pa
775
INFLATION
+ 0.50% pa
552
- 0.50% pa
(511)
MORTALITY
Life expectancy + 1 year
223
Life expectancy - 1 year
(228)
26. P R O V I S I O N F O R L I A B I L I T I E S
2022
£000
2021
£000
At 1 January
291
250
Acquisition
-
41
Increase in provision during the year
1,019
-
Amount used during the year
(1,300)
-
Exchange adjustment
35
-
At 31 December
45
291
As previously announced the Group created a provision of £0.25m in respect of historical contract disputes that arose
in 2017 with a a maximum exposure of approximately €4.5m. The maximum exposure includes additional claims
for consequential losses. During the year an additional provision of €1.2m (£1m) was provided for full and final
settlement of this contract dispute.
In October 2022, the Group paid €1.48m (£1.3m), of which its insurer agreed to contribute €0.45m (£0.4m) resulting
in a net payment due of approx. €1.0m (£0.9m).
The balance of £0.04m relates to the general provision that PDS provided for warranty and remained unchanged as of
31 December 2022 based on management estimates.
1 1 1
27. S H A R E C A P I TA 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:
2022
No. of shares
2021
No. of shares
Beginning of the year
22,189,856
20,481,909
Issued on exercise of employee share options
217,500
88,667
Share issue on acquisition of The Edge
-
391,920
Share issue on acquisition of d-wise
-
868,203
Share issue on acquisition of PDS
-
359,157
Share issue in relation to deferred and contingent consideration of d-Wise
296,952
-
Total shares issued and fully paid at 31 December
22,704,308
22,189,856
Additional shares were issued during 2022 relating to share-based payments (see note 10 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 (2021:
£nil).
Share premium has also been recorded in respect of the issue of share capital related to employee share-based payment.
28. 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 deferred and contingently issuable shares in relation to the d-Wise acquisition were settled in April 2022.
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.
2022
2021
Profit after tax
(£000)
Weighted
average
number of
shares (000’s)
Profit per
share
(pence)
Profit after tax
(£000)
Weighted
average
number of
shares (000’s)
Profit per share
(pence)
Earnings per share - Basic
4,697
22,577
20.8
1,678
21,591
7.8
Potentially dilutive shares
(share options)
-
1,109
-
-
1,128
-
Earnings per share - Diluted
4,697
23,686
19.8
1,678
22,719
7.4
1 1 2
28. 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 and the unwinding
of the finance liability included in finance income/(costs), non-recurring items, amortisation of intangibles on
acquisitions and impairment of goodwill. The adjusted profit after tax has been amended in 2022 to ensure that the
foreign exchange movements and the unwinding of the finance liability do not impact and distort the earnings per
share calculation.
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.
2022
Adjusted profit after
tax (£000)
Weighted average
number of shares
(000’s)
Adjusted earnings per
share (pence)
Earnings per share - Basic
7,403
22,577
32.8
Potentially dilutive shares (share options)
-
1,109
-
Earnings per share - Diluted
7,403
23,686
31.3
2021 (as restated)
2021 (as initially reported)
Adjusted profit
after tax
(£000)
Weighted
average
number of
shares (000’s)
Adjusted
earnings per
share (pence)
Adjusted profit
after tax
(£000)
Weighted
average
number of
shares (000’s)
Adjusted
earnings per
share (pence)
Earnings per share - Basic
4,633
21,591
21.5
3,704
21,591
17.2
Potentially dilutive shares
(share options)
-
1,128
-
-
1,128
-
Earnings per share - Diluted
4,633
22,719
20.4
3,704
22,719
16.3
Reconciliation of adjusted profit before tax:
2022
£000
2021 (as restated)
£000
2021 (initially reported)
£000
Reported profit before tax
5,473
2,984
2,984
Non-recurring costs
1,208
1,286
1,286
Non-recurring income
(401)
(805)
(805)
Amortisation of acquired intangibles
1,953
1,563
1,563
Impairment of goodwill
107
-
-
Foreign currency exchange (gain)/loss
(932)
44
-
Finance cost on deferred and contingent consideration
771
867
-
Foreign exchange differences on revaluation of inter-group balances
-
-
(18)
Adjusted profit before tax
8,179
5,939
5,010
Tax
(776)
(1,306)
(1,306)
Adjusted profit after tax
7,403
4,633
3,704
Profit after tax
4,697
1,678
1,678
1 1 3
28. 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 )
2022
Weighted average
number of shares
(000’s)
2021
Weighted average
number of shares
(000’s)
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
22,577
21,591
Adjustments for calculation of diluted earnings per share:
Share options
1,109
1,128
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
23,686
22,719
29. C A P I TA 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.
1 1 4
29. C A P I TA L A N D R E S E R V E S ( C O N T I N U E D )
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.
30. C A P I TA L C O M M I T M E N T S
There were no capital commitments at the end of the financial year (2021: £nil).
1 1 5
31. R E L AT E D PA R T Y T R A N S A C T I O N S
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation
of the consolidated financial statements. During the year, the Company traded with subsidiary companies in its
normal course of business. These transactions related to recharges and totalled in aggregate £2m (2021: £1.2m). The
net intercompany balances payable by the Company at the year-end totalled £1.5m (2021: due from £4.4m).
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:
2022
£000
2021
£000
Group and Company
Fees for services provided as Non-Executive Directors
Salaries and short-term benefits
174
141
Employer's national insurance & social security costs
16
15
190
156
Group
Executive Directors
Salaries and short-term benefits
423
412
Post-employment retirement benefits
43
38
Employers’ national insurance & social security costs
64
29
Share based payment charge
317
215
847
694
Group
Other key management
Salaries and short-term employee benefits
1,143
1,194
Post-employment retirement benefits
61
56
Employers’ national insurance & social security costs
103
97
Share based payment charge
422
428
1,729
1,775
The Company paid £0.06m (2021: £0.10m) to Instem Ventures Limited for professional consultancy services, a
company owned by A Gare, a shareholder. The balance outstanding at the end of the year was £nil (2021: £nil).
Key management are considered to be the Directors together with the Senior Managers of the business.
32. 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 £8.2m (2021: £21.9m).
1 1 6
33. 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.
The organisational changes, described at the beginning of the Chief Executive’s Report reduce the number of business
units from four to three and will impact future segmental disclosures.
On 24 February 2023, the Group established an employee benefit trust (EBT) to subscribe for new issue shares or
acquire shares in Instem plc in the market as required, in the future, in order to satisfy awards made upon the vesting
of employee share schemes.
On 1 April 2023, Instem completed the disposal of Samarind Limited, which was part of the Regulatory Solutions
business operating segment. The consideration receivable is up to £1.0m, of which £0.8m was satisfied by cash received
on completion plus or minus estimated net cash. The remaining balance of £0.2m is payable contingent on Samarind
Limited’s future performance and would be payable in cash. The Consolidated financial statements and related notes
represent results from continuing operations, there being no discontinued operations in the years presented.
On 15 May 2023, the Group launched Centrus, incorporating all of our existing in silico solutions and the ToxHub
assets acquired or licensed from the eTRANSAFE consortium, as previously described.
1 1 7
D I R E C T O R S
D Gare (Non-Executive Chairman)
D M Sherwin (Non-Executive, resigned 31 January 2023)
M F McGoun (Non-Executive)
R Bandali (Independent Non-Executive)
M R Dolson (Independent Non-Executive, appointed 9 January 2023)
P J Reason
N J Goldsmith
S E C R E TA 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
AU D I T O R
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London E14 4HD
B A N K E R
HSBC UK Bank Plc
9th Floor, Liver Building
Pier Head
Liverpool L3 1JH
N O M I N AT 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 BS13 8AE
S O L I C I T O R S
Squire Patton Boggs (UK) LLP
No 1 Spinningfields
1 Hardman Square
Manchester M3 3EB
D I R E C T O R S A N D A D V I S O R S
1 1 8
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
O U R C L I E N T S
1 1 9
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 0
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