Annual Report and
Financial Statements
2013
Contents
Strategic Report ......................................................................................................................................... 4
• Chairman’s Statement ......................................................................................................................... 4
• Finance Director’s Report ................................................................................................................... 7
• Key Performance Indicators............................................................................................................... 9
• Principal Risks and Uncertainties ................................................................................................... 9
• Corporate Responsibility ..................................................................................................................10
Report of the Directors ..........................................................................................................................12
• Corporate Governance Report ........................................................................................................14
• Board Committees ..............................................................................................................................15
• Report of the Remuneration Committee ...................................................................................16
• Report of the Audit Committee .....................................................................................................17
• Report of the Nomination Committee ........................................................................................18
• Directors’ Responsibilities ................................................................................................................18
• Approval ..................................................................................................................................................18
Independent Auditor’s Report ............................................................................................................19
Financial Statements...................................................................................................................... 20 - 56
• Consolidated Income Statement ...................................................................................................21
• Consolidated Statement of Comprehensive Income .............................................................22
• Consolidated and Company Statement of Changes in Shareholders’ Equity ..............23
• Consolidated and Company Balance Sheet ...............................................................................24
• Consolidated and Company Statement of Cash Flows .........................................................25
• Notes to the Financial Statements ....................................................................................... 26 - 56
3
About Sagentia Group plc
Sagentia Group plc (including its subsidiaries) is a global science, technology and product development Group
working across a range of market sectors, including medical, oil & gas, consumer and industrial.
Through its operating companies, Sagentia offers technology advisory and outsourced R&D services, from new
opportunity discovery and technology strategy, through to concept generation and full product development.
Sagentia works with a diverse range of clients of all sizes, ranging from some of the world’s largest corporations
to technology start-ups. The Group’s headquarters are based near Cambridge, UK with offices in London,
Guildford, Boston, Houston and Dubai.
Technology advisory
Technology validation &
concept generation
Technology &
product development
Launch & transfer
to manufacture
Proof of principle de m onstrators
M odellin g & algorith m s
m ercial evaluation
Tech nical d ue diligence
Tech nology realisation
Su p plier d ue diligence
O p portu nity discovery
Syste m s architecture
N eeds identification
Concept generation
M arket intelligence
In process testin g
Scientific insight
Trou bleshootin g
D etailed desig n
IP lan dscapin g
Prototypin g
Tech nology strategy
Co m
2013 Annual Report and Financial StatementsSagentia Group plc 4
Strategic Report
Chairman’s Statement
Sagentia Group plc (‘Sagentia’ or the ‘Group’) reports a very
satisfactory operating performance for the year ended 31
December 2013, delivering revenue growth, both organic
and through acquisition, while maintaining strong operating
margins and cash flow. The first half of the year was
exceptional with a number of large product development
projects being delivered, while performance in the second half
of the year benefitted from the acquisition of OTM Consulting
Limited (‘OTM’) in July 2013.
Group revenue increased by 37% to £30.6 million (2012: £22.3
million) in total and by 27% to £28.2 million on an organic basis
(excluding revenue derived from businesses acquired during
the year). Consultancy fees increased by 44% to £25.8 million
(2012: £17.9 million) of which acquisitions accounted for £2.4
million in the year. Adjusted operating profit increased by 48%
to £5.7 million (2012: £3.9 million), representing a very strong
adjusted operating margin of 18.8% (2012: 17.4%), benefitting
from the receipt of a one-off licence of £0.4 million. The results
in the first half of the year also benefitted from a relatively
weaker currency exchange environment although, with the
strengthening of Sterling in the latter part of 2013, for the
year as a whole the average exchange rate was not materially
different to 2012.
Cash balance at 31 December 2013 was £22.4 million (2012:
£19.2 million) with net funds of £12.6 million (2012: £12.9
million), after acquisition consideration payments of £3.8
million (net of cash acquired). (Throughout this report,
adjusted operating profit excludes amortisation of acquisition
related intangible assets, share based payment charges and
other exceptional items.)
Business summary and Operational review
Sagentia Group plc provides outsourced science, technology
and product development consultancy services to a wide
range of markets. The majority of the Group’s revenues are
derived from projects operated on behalf of clients on a time
and materials basis, although some projects, particularly
technology advisory work, are undertaken on a fixed price
basis. The Group’s operations are based primarily in Harston,
near Cambridge, UK and in Boston, Massachusetts, in the
US. Following the acquisition of OTM Consulting Limited, the
Group also has offices in Guildford, UK; Houston, Texas, USA;
and Dubai. The Group is also opening an office in London to
support the Technology Advisory strategy outlined below.
Revenue from Medical customers increased by 25% to £13.1
million (2012: £10.5 million) and accounted for approximately
46% of Group Core Business revenue for the year (2012: 53%).
Projects in the medical market are generally for large corporate
or well-financed start-up organisations and therefore, while
these large projects generally tend to provide Sagentia with
greater demand visibility, they do also result in greater
customer concentration and changed priorities by clients may
impact on Sagentia’s performance at short notice. The global
medical market continues to be dominated by North American
companies and in 2013 approximately 82% of the revenue
derived from Sagentia’s Medical customers was sourced from
North America (2012: 64%).
Sagentia reported growth of approximately 67% to £15.2
million (2012: £9.1 million) from the Group’s Commercial
customers, reflecting good organic growth and the benefits
of the OTM acquisition. While the average project size
from Commercial customers is generally smaller than for
Medical projects, Sagentia has strong customer relationships
with considerable repeat business from a number of large
international organisations. The inclusion of OTM in the second
half of 2013 and the continued development of key client
accounts in the consumer and industrial markets, resulted
in a significant year-on-year increase in Commercial market
revenues, such that Commercial customers accounted for
approximately 54% of the Group’s Core Business revenue (2012:
47%) in the year.
Most of the Group’s consultants are currently managed
through five skill groups (Science & Technology, Embedded
Software, Mechanical Engineering & Design, Project
Management and Technology Advisory) and are deployed onto
projects as required. This structure provides the Group with the
benefits of scale; customers with access to a breadth of science,
technology & engineering expertise; and Sagentia’s employees
with a diversity of technical challenges. Support functions (e.g.
finance, HR, legal, marketing and IT) are managed centrally to
maximise the benefits of scale from shared resources. Group
headcount, excluding contract resources, at 31 December 2013
was 218 (31 December 2012: 155).
Corporate development
On 9 July 2013, Sagentia announced the acquisition of OTM,
an international technology consultancy specialising in
the oil, gas and alternative energy sectors. This acquisition
accelerated the Group’s development in this identified target
market. Integration of OTM has progressed satisfactorily and
joint marketing activities are affirming the potential synergies
between the OTM and Sagentia offerings. There are no deferred
payments associated with the OTM acquisition.
The Group also acquired Quadro Design Limited (formerly
QDA Limited) (‘Quadro’) on 14 February 2013. Quadro is a
small industrial design company and during the year has
demonstrated the benefits from enhancing the offerings of
Sagentia. The first year’s earn-out target has been achieved.
During the latter part of the year, the Board has undertaken
a review of the Group’s outsourced IT services business,
Manage5Nines Limited (‘Manage5Nines’). This business is
not core to the operations of the Group and has no strategic
fit with the future direction of Sagentia. In an increasingly
challenging market for IT services and with revenue declining,
after considering a number of alternative options the Board
resolved to wind down the business activities of Manage5Nines
over a period of time. In 2013, Manage5Nines revenue
Strategic Report continued
5
declined by 16% to £1.1 million with £40,000 profit before tax
contributed to the Group, before £0.2 million of provisions
related to the wind down of the business (2012: £1.3 million
revenue and profit before tax of £0.2 million).
Over the past few years the Board has successfully refocused
the Group on its core discipline of providing outsourced
science, technology and engineering services. As the Group
develops, both through organic growth and acquisitions, the
service offerings are now being extended. In particular, while
Sagentia has offered technology advisory services for some
years, the Board believes that there is a significant opportunity
to accelerate growth from these specialty consultancy areas
and has increased investment to pursue this opportunity.
Therefore, the Board has reviewed the structure of the
Group and with effect from 1 January 2014 its core business
comprises two operating divisions:
• The Product & Technology Development division represents
the majority of the existing business that is focused on
science, product and technology development. The division
incorporates the Quadro industrial design business acquired
in 2013.
• The Technology Advisory division provides technology
advisory services to a number of market sectors (e.g.
Healthcare and Energy) but also provides horizontal
speciality services (e.g. Intellectual Property). The division
incorporates the OTM business acquired in 2013 which will
continue to focus on providing technology advisory services
to the oil and gas market under the OTM brand.
Board changes
In November 2013, after three years at Sagentia, Neil Elton,
Finance Director, notified the Board of his intention to
leave the Company to pursue a new challenge. Mr Elton made
a significant contribution to the successful turnaround and
development of the Group and the Board wish him well for
the future. A charge of £123,000 is included in the income
statement for the year relating to associated one-off charges,
reflecting the settlement of contractual obligations by the
Company.
On 27 January 2014, Rebecca Hemsted was appointed as
Finance Director of Sagentia Group plc. Ms Hemsted is a
Chartered Accountant and has a degree in Physics from the
University of Oxford. She qualified at Deloitte where she spent
six years including three years in New Zealand and was most
recently Business Finance Partner for the Managed Services
Business of RM plc.
Sharing in success
As a science and technology consultancy, where Sagentia
clients value and procure the Group’s high levels of expertise
in solving complex science, technology and engineering
challenges, it is not rhetoric in stating that the Group’s assets
are its people. The deep scientific skill base, built up over
27 years has, over the past four years, been combined with
effective business management to deliver substantial returns
for Sagentia shareholders.
The Board of Sagentia remains committed to delivering
shareholder value over the medium term and believes that
sharing the rewards of the Group’s endeavours reinforces
that objective. Consistent with this philosophy, every
employee of Sagentia (excluding the Chairman, Non-Executive
Directors, and sales staff who are incentivised by way of sales
commissions) is a member of the Group bonus scheme which
is primarily based on the performance of the Group as a whole,
an approach that reinforces the cooperation and collaboration
that is essential in solving the challenges which Sagentia
confronts every day for its clients. For 2013, the average bonus
payment per employee as a percentage of basic pay was 21.3%
(2012: 13.7%), reflecting the strong performance in the year.
Sagentia’s business is focused on science, technology and
engineering. The associated benefit to society and the economy
derived from the Group’s work is not insignificant. During
2013, Sagentia has worked on projects which have produced
significant tangible economic benefits to clients targeting
the consumer market; developed world-leading science and
technology solutions for industrial clients; while in parallel
working on life-changing projects in the medical field.
Whilst the Board is very clear that Sagentia is a commercial
organisation, it also recognises Sagentia’s corporate social
responsibility, although firmly believes that such activities
should be aligned with shareholder objectives. As a result,
in 2013, Sagentia launched a STEM (Science, Technology,
Engineering and Mathematics) Bursary Programme for up to
ten undergraduate students per annum at leading UK science,
technology and engineering universities. These students also
receive priority in undertaking paid sandwich year placements
and summer work experience placements with Sagentia.
This initiative follows on from the enhancements made to
Sagentia’s Graduate Recruitment Programme introduced
in 2012, whereby Sagentia contributes towards student
loan repayments for the first three years of employment
to assist young graduates joining Sagentia. These tangible
actions reflect Sagentia’s positive contribution to education
of STEM students and the alignment of its corporate social
responsibility programmes with long term shareholder
objectives.
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held on 20 May
2014. In 2013 the Group paid a maiden dividend and advised
that in the future, the Board anticipated recommending
a single dividend being paid each year. For 2013 the Board
recommends a dividend of 1.1 pence per share (2012: 1.0
pence) which, subject to shareholder approval, will be payable
on 12 June 2014 to shareholders on the register at the close
of business on 23 May 2014. Since the Group remains focused
on growth, including investment in its current operations and
exploring potential acquisition opportunities, the Board does
not anticipate any material change in the level of dividends in
the foreseeable future.
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Strategic Report continued
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Chairman’s Statement (continued)
As in previous years, the Board will also seek approval from
Shareholders at the AGM for authority to acquire up to 10%
of the issued share capital of the Company so that, if deemed
appropriate and in the best interests of shareholders, the
Company may undertake further share purchases in the
coming year. Due to the shareholding of the Chairman
(32.5% at 31 December 2013), this authority will again be
conditional on the passing of a general authority Panel Waiver
by shareholders and on Takeover Panel approval of a waiver
of Rule 9 of the UK Code on Takeovers and Mergers.
Summary
In summary, 2013 had an exceptional start to the year, with
the Group simultaneously servicing the peak phases on a
number of large projects. As anticipated, the second half
returned to more normal operating levels. While for the
year as a whole the average currency exchange rates did
not have a material effect on 2013 performance relative to
2012, an assessment of the impact of the recent volatility in
currency exchange rates is provided in the Finance Director’s
Report. Overall, Sagentia produced another very satisfactory
performance for the year, a great credit to the management
team and staff who have now delivered four years of
consistently strong performance, after many prior years
of losses, a recovery that has been undertaken during
an economically challenging period.
For a science, technology and engineering services business
of Sagentia’s size, the Group’s operating margins are towards
the upper end of its peer group, benefitting in 2013 from the
one-off licence receipt. However, the Board is committed to
balancing operating margin and investments in order that
the Group’s performance is sustained and shareholder value
is enhanced over the medium term. As such, whilst the Board
will remain cautious and prudent in managing the day-to-day
business, it will explore and invest in growth opportunities
that are anticipated to deliver medium term benefits to
shareholders.
The Board continues to evaluate corporate opportunities to
accelerate the growth of Sagentia. During the year, numerous
potential acquisitions were evaluated and two transactions
were completed. Sagentia remains active in its pursuit of such
opportunities, although there can be no certainty that any
transaction(s) will occur.
Martyn Ratcliffe
Chairman
Finance Director’s Report
In the year ended 31 December 2013, the Group generated
revenue of £30.6 million (2012: £22.3 million), a 37% increase.
On an organic basis (excluding revenue derived from
businesses acquired during the year), revenue increased by 27%
to £28.2 million (2012: £22.3 million).
Adjusted operating profit increased by 48% to £5.7 million
(2012: £3.9 million). The resulting adjusted operating margin
was 18.8% (2012: 17.4%). Unadjusted operating profit increased
by 66% to £5.4 million (2012: £3.2 million). Profit before tax
increased by 65% to £4.9 million (2012: £3.0 million). On an
organic basis, profit before tax increased by 58% to £4.7 million.
(To provide a better guide to underlying business performance,
adjusted operating profit excludes the amortisation of
acquisition related intangible assets, share based payment
charges and other exceptional items. The exceptional cost in
the prior year of £0.5 million related to the resignation of the
Chief Executive Officer in October 2012.)
A significant proportion of the Group’s revenue is denominated
in US Dollars and Euros and changes in exchange rates can
have a significant influence on the financial performance. In
2013, £13.9 million of the Group revenue was denominated
in US Dollars at an average exchange rate of 1.57 (2012: £15.9
million at 1.59) and £1.3 million was denominated in Euros at
an average exchange rate of 1.18 (2012: £1.9 million at 1.23).
At 28 February 2014, the US Dollar exchange rate was 1.67
and the Euro rate was 1.21. If the 28 February 2014 exchange
rates had prevailed throughout 2013, it is estimated that the
adjusted operating profit in the year would have been lower by
approximately £0.8 million.
At 31 December 2013, Sagentia had £19.4 million (2012: £23.0
million) of tax losses carried forward of which £12.6 million
related to trading losses which are anticipated to be used to
offset future trading profits. As at 31 December 2013, all of
these carried forward trading tax losses have been recognised
as a deferred tax asset in the balance sheet. This asset will
reduce as the tax losses are utilised, the effect of which will
be that from 2014 it is anticipated that the tax charge
reported in the statutory accounts will more closely reflect the
corporation tax rate with a corresponding effect on reported
profit after tax and earnings per share. However, the Board
anticipates that, in view of the tax losses carried forward, the
Group’s cash outflow related to tax will continue to be limited
for the foreseeable future.
Based on the average number of shares in issue during the
year, adjusted basic earnings per share (‘EPS’) from continuing
operations increased by 40% to 13.4 pence (2012: 9.6 pence)
and adjusted diluted EPS from continuing operations increased
to 12.2 pence (2012: 9.1 pence). For future comparison
purposes, taking into account the accounting treatment of tax
losses referenced above, adjusted basic EPS normalised at the
corporation tax rate for 2013 would have been 10.9 pence and
“normalised” adjusted diluted EPS would have been 9.9 pence.
On a statutory basis, basic earnings per share from continuing
operations increased by 57% to 12.4 pence (2012: 7.9 pence)
and diluted EPS from continuing operations increased to 11.2
pence (2012: 7.5 pence).
On 8 July 2013, Sagentia acquired OTM Consulting Limited,
an international technology consultancy specialising in the
oil, gas and alternative energy sectors, for consideration of
£6.3 million, comprising £5.3 million in cash and £1.0 million
in Sagentia shares. OTM net assets at completion were £1.1
million including £1.5 million in cash. OTM contributed £2.1
million revenue and £0.2 million profit before tax to the Group
in the second half of 2013. Goodwill on acquisition has been
calculated at £3.5 million with acquisition intangible assets of
£2.2 million represented by customer relationships.
On 14 February 2013, Sagentia acquired Quadro Design
Limited, a small industrial design company. Consideration is
based primarily on an earn-out agreement over three years
with an initial consideration of £14,000 and a maximum
contingent consideration of 180,000 shares in Sagentia. Given
the early stages of investment in the business, the contribution
during 2013 was immaterial.
The Group reports its results under two business segments.
The ‘Core Business’ represents all revenues derived from
consultancy fees (excluding IT services) and project expenses
recharged on consultancy projects, together with revenues
from product sales and licence income. The ‘Other’ segment
comprises fees and recharged project expenses derived from
outsourced IT services (Manage5Nines Limited, a wholly owned
subsidiary) and property income.
Revenue from Core Business activities increased by 45% to
£28.3 million, of which £2.4 million relates to post-acquisition
revenues from the acquired businesses, compared with £19.6
million in 2012. Excluding post-acquisition revenues, Core
Business revenues were £26.0 million, representing a 33%
annual increase. Consultancy fees, which exclude recharged
material revenues, product and licence income and other
non-Core revenues, increased by 44%, of which £2.4 million
was derived from acquisitions. Revenue from Core Business
operations includes materials used in projects recharged to
customers of £2.1 million (2012: £1.5 million), and product and
licence revenue of £0.5 million (2012: £0.2 million). The increase
in licence revenue reflects a one-off licence of £0.4 million.
Other revenue includes property income from rental space
let in the Harston Mill facility of £1.2 million (2012: £1.4
million). As Sagentia has grown, it has taken on more space
in the Harston Mill site, a trend that the Board anticipates
will continue in the medium term. The Harston Mill property
currently has a total of 8 tenants (2012: 10 tenants).
Approximately 7,400 square feet, or 18% of the total lettable
area was available at the beginning of 2014 and is currently
being marketed. Other revenue also includes IT Support
(including materials) through Manage5Nines Limited totalling
£1.1 million (2012: £1.3 million). The Board reviewed the future
of this business and the decision was taken towards the end of
2013 to wind down the operations of Manage5Nines Limited.
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Strategic Report continued
Strategic Report continued
Finance Director’s Report (continued)
The results for 2013 include a provision of £0.2 million related
to the costs of this action. As management do not consider
this to be a major line of business for the Group, under IFRS
5, the results of the business have not been disclosed as a
discontinued operation.
In September 2013, the Group entered into a new £10.0 million
term loan with Lloyds TSB Bank plc (‘Lloyds’) for a term of five
years with £5.0 million amortising and the remaining £5.0
million repayable at term. This loan is secured solely on the
freehold property at Harston and subject to maintaining cash
balances in excess of £2.0 million, the loan is not subject to
operating covenants. The loan replaces the previous facility
which was due to expire in October 2015 and on which there
was an outstanding balance of £5.8 million. The new loan was
used to pay down the outstanding balance on the previous
loan. The Group has also entered into a five year interest rate
swap, the effect of which is to fix the interest rate on the new
loan at approximately 3.9%, a reduction on the fixed rate of
4.7% in place on the previous loan. The Group has cancelled the
previous interest rate swap at a one-off cost of £0.2 million, the
charge for which has been recognised in 2013. The Group has
adopted hedge accounting under IAS 39 and the £41,000 loss
on the interest rate hedge as at 31 December 2013 has been
recognised in reserves (2012: £Nil).
The Group has a strong balance sheet with Shareholders’
Funds at 31 December 2013 of £31.1 million, equivalent to 80.6
pence per share (2012: Shareholders’ Funds of £25.3 million
equivalent to 68.9 pence per share) including the Group’s
freehold property in Harston. The gross cash position at 31
December 2013 was £22.4 million (2012: £19.2 million) and
net funds were £12.6 million (2012: £12.9 million), after net
acquisition consideration payments of £3.8 million. It should
be noted that, as in previous years, the year-end cash position
is enhanced by seasonal factors, particularly management/
employee bonus payments accrued in 2013 and payable in
March 2014. Net cash generated from operating activities was
£3.9 million (2012: £3.7 million). Debtor days were 48 days
(2012: 31 days) and combined debtor and WIP days were 21
(2012: 11).
The freehold property at Harston was valued in July 2010 by
Savills for Lloyds. As part of the refinancing, in August 2013
the freehold property was again valued by Savills. Under the
assumptions used, including tenant covenant strength and
market rents, the latest indicative valuation range for the
building was between £12.9 million (2010: £11.9 million) based
on occupational tenancies and £18.0 million (2010: not less
than £14.0 million) under a sale and leaseback scenario. The
Board has not adjusted the carrying value of the property on
the balance sheet.
Rebecca Hemsted
Finance Director
Key Performance Indicators
The key performance indicators (‘KPIs’) are profit and cash flow.
Profitability of the business, with its relatively fixed cost base,
is managed primarily via the review of revenue with secondary
measures of consultant utilisation and daily fee rates. Working
capital is reviewed via measures of debtor days and combined
debtor and WIP days. Performance against KPIs is reported in
the Finance Director’s Report.
Principal Risks and Uncertainties
In addition to the financial risks discussed in Note 3 and the
effects on business performance related to changes in currency
exchange rates noted in the Finance Director’s Report, the
Directors consider that the principal risks and uncertainties
facing the Group and a summary of the key measures taken to
mitigate those risks are as follows:
Potential downturn in the market for outsourced services
Sagentia is dependent on the global market for outsourced
research and development services. An economic downturn
or instability may cause customers to delay or cancel product
development projects and/or related services, or to use internal
resources to achieve their business goals.
The Group seeks to mitigate this risk by diversifying exposure
across geographical markets; increasing the number of
market sectors in which the Group operates; diversifying the
type of customers with whom the Group operates (ranging
from well-funded start-up companies to large multi-national
corporates); increasing the range of service offerings that the
Group provides; and marketing activities to inform current and
prospective customers regarding the benefits of outsourced
research and development services and Sagentia’s proven
ability to fulfill those objectives.
Dependence on key personnel
Sagentia’s business relies on recruiting and retaining highly
qualified technical experts on whom the business depends
to deliver research and development services, often requiring
leading edge science and technology. Failure to recruit and
retain key staff could threaten the business’s ability to deliver
projects to its clients or to win new work.
The Group seeks to mitigate this risk by encouraging staff
retention by offering competitive remuneration packages for
personnel including base salary, annual bonus, pension and
health benefits and share option schemes; offering a diversity
of technically challenging work for a diversity of customers in a
number of market sectors, across a variety of technologies; and
providing career development paths and training support.
Reputational risk
Failure to deliver project deliverables to an agreed budget and
timetable on a particular project may result in reputational
damage to Sagentia that may adversely affect future sales.
The Group seeks to mitigate this risk by having in place
effective Quality Assurance procedures; senior management
review meetings being held with clients on a regular basis;
formal questionnaires being sent to clients at the close of
projects to ascertain their views and to inform improvements
and actions that the company may take; and subscription
to various accreditations including ISO 9001:2008 and ISO
13485:2003.
Economic conditions or other factors affecting the financial
circumstances of customers of the Group
The profitability of the Group could be adversely affected by the
general economic conditions in the United Kingdom, United
States and/or other key markets by virtue of the financial
failure of customers or potential customers of the Group. It
may also involve customers defaulting on the payment of
invoices issued by the Group or delaying payment of invoices
which may have a significant impact on the income and the
business of the Group.
The Group seeks to mitigate this risk by actively managing
customer credit limits and monitoring invoicing and work-in-
progress on a regular basis and if appropriate, requiring the
payment in advance of all or part of the estimated costs.
Project over-run or failure to meet technical milestones
Projects may over-run and/or may fail to meet technical
milestones because the nature of the work which Sagentia
undertakes is technically challenging. Project over-runs can
lead to loss of margin on projects and overall profitability for
the consultancy business. Poor performance may also result in
damage to Sagentia’s reputation.
The Group seeks to mitigate this risk by contracting the majority
of projects on a time and materials basis; operating a formal bid
review process including peer review of estimates submitted
to customers; incorporating appropriate risk premiums into
agreements if appropriate; conducting regular project reviews to
assess whether the revenue recognised on work in progress is a
fair representation of actual costs incurred and estimated costs
to completion; conducting regular, formal project Board review
meetings for large projects; and management meetings with
clients to review progress on projects.
In addition to the principal risks and uncertainties above, the
Group faces other risks that include but are not limited to:
• increased competition;
• failure to retain, or loss of, customer contracts;
• customer concentration;
• technology leadership;
• product liability claims or other warranty and indemnity
claims in respect of contractual obligations;
• infringement of third party intellectual property rights;
• failure of licensees to successfully exploit licensed technology;
• counterparty risk;
• United Kingdom and other taxation;
• risk to property;
• changes in legislation relating to trading.
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Corporate Responsibility
Sagentia takes its responsibilities as a corporate citizen seriously
in the territories in which the company operates. The Board’s
primary goal is to create shareholder value but in a responsible
way which serves all stakeholders. Furthermore, Sagentia seeks
to continually enhance and extend its science and technology
contribution to society through the work the Group undertakes
with its clients and in areas where the Group decides to invest
and explore directly.
Governance
The Board considers sound governance as a critical component
of Sagentia’s success and the highest priority. Sagentia has
an effective and engaged Board, with a strong non-executive
presence from diverse backgrounds, and well-functioning
governance committees. Through the Group’s compensation
policies and variable components of employee remuneration,
the Remuneration Committee of the Board seeks to ensure that
the company’s values are reinforced in employee behaviour and
that effective risk management is promoted.
More information on our corporate governance can be found
on page 14.
Diversity and inclusion
Sagentia’s employment policies are non-discriminatory on
the grounds of age, gender, nationality, ethnic or racial origin,
non-job-related-disability, sexual orientation or marital status.
Sagentia gives due consideration to all applications and
provides training and the opportunity for career development
wherever possible. The Board does not support discrimination
of any form, positive or negative, and all appointments are
based solely on merit.
Employees and their development
Sagentia is dependent upon the qualities and skills of its
employees and the commitment of its people play a major role
in the Group’s business success. The Group invests heavily in
training and developing its staff through internally arranged
knowledge sharing events and through external courses,
including technical, business and managerial training.
Employees’ performance is aligned to the Group’s goals
through an annual performance review process and via
Sagentia’s incentive programmes. Sagentia provides employees
with information about its activities through regular briefings
and other media. Sagentia operates a company-wide bonus/
profit share scheme and a share option scheme, at the
discretion of the Remuneration Committee. Executives and
managers in Sagentia are invited to participate in these
schemes on the basis of recommendations made by the
Executive Management to the Remuneration Committee.
Sagentia also recognises the particular challenges for young
graduates entering the workforce. In 2012 the company
initiated a programme to assist new graduates employed by
Sagentia with payments towards their student loans, such
that they receive extra support for the first three years of their
employment.
The gender ratio for the Group at the end of the year was as follows:
Research & development
Sagentia provides outsourced research & development services
and therefore has an inherent and continuing commitment to
very high levels of research & development, primarily on behalf
of its clients but also on its own behalf.
Environment
Sagentia’s policy with regard to the environment is to ensure
that we understand and effectively manage the actual and
potential environmental impact of our activities. The Group’s
operations are conducted such that compliance is maintained
with legal requirements relating to the environment in areas
where the Group conducts its business. During the period
covered by this report Sagentia has not incurred any fines or
penalties or been investigated for any breach of environmental
regulations.
Approved by the Board of Directors on 4 March 2014 and
signed on its behalf by
Martyn Ratcliffe
Chairman
Rebecca Hemsted
Finance Director
STEM bursary scheme
Sagentia has provided opportunities to paid interns since
2000 with many going on to work for the company after
graduating. With effect from 2013, Sagentia launched the
Sagentia Bursary Scheme, offering up to 10 paid bursaries
of £2,500 each to support science and engineering students
during the academic year. Successful applicants are also given
preferential consideration for paid sandwich-year and/or
summer placements with Sagentia and future employment
opportunities. The Board anticipates these schemes continuing
in the year ahead.
Health and safety
Sagentia endeavours to ensure that the working environment
is safe and conducive to healthy, safe and content employees
who are able to balance work and family commitments. The
Group has a Health and Safety at Work policy which is reviewed
regularly by the Board. The Board Executive Director responsible
for health and safety is the Finance Director.
The Group is committed to the health and safety of its
employees, clients, sub-contractors and others who may be
affected by the Group’s work activities. The Group evaluates
the risks to health and safety in the business and manages this
through a Health and Safety Management System.
The Group provides necessary information, instruction,
training and supervision to ensure that employees are able
to discharge their duties effectively. The Health and Safety
Management System used by the Group ensures compliance
with all applicable legal and regulatory requirements and
internal standards and seeks by continuous improvement to
develop health and safety performance.
31 December 2013
Female
%
Male
%
No
No
31 December 2012
Female
%
Male
%
No
No
Plc Board of Directors (incl Company Secretary)
Operating Board
Senior Management & Staff (>£60,000 per annum)
Other Staff
Total Staff
5
3
48
106
162
83%
75%
86%
70%
74%
1
1
8
46
56
17%
25%
14%
30%
26%
5
-
37
77
119
83%
-
90%
71%
77%
1
-
4
31
36
17%
-
10%
29%
23%
Notes
• Staff are only allocated to one category. For example, where an employee is a member of the plc Board, that person is not then
included within the other classifications.
• Subsidiary directors have not been separately identified in the above table. With the exception of one male and two female
subsidiary directors, all subsidiary directors are either plc Board Directors or sit on the Operating Board.
• From 27 January 2014, the plc Board (including Company Secretary) comprises 4 male and 2 female members.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc
12
13
Report of the Directors
Report of the Directors continued
Directors
The Directors of the Company who served during the year were:
Director
Martyn Ratcliffe
Neil Elton
David Courtley†
Michael Lacey-Solymar†
Keith Glover†
Role at
31 December 2013
Date of (re-)
appointment
Retired
Board Committee
Chairman
Finance Director
Non-Executive
Non-Executive
Non-Executive
16/04/12
16/05/11
15/05/13
15/05/13
16/04/12
14/02/14
N
N
N
N
A
A
A
R
R
R
Board Committee abbreviations are as follows: A = Audit Committee; R = Remuneration Committee; N = Nomination Committee
† Independent Director
Ms Rebecca Hemsted was appointed Finance Director on 27 January 2014 and Mr Neil Elton retired on 14 February 2014.
Martyn Ratcliffe – Chairman
Martyn Ratcliffe was appointed Chairman on 15 April 2010
following his investment in Sagentia. He has been Chairman of
Microgen plc since 1998. He was previously Senior Vice President
of Dell Computer Corporation, responsible for the Europe, Middle
East and Africa region. He has a degree in Physics from the
University of Bath and an MBA from City University, London.
Michael Lacey-Solymar – Non-Executive Director
Michael was appointed a Non-Executive Director on 11 October
2012. Michael has over twenty-five years corporate finance
experience, having spent eighteen years at UBS and seven years
at Investec. He is currently a partner at Opus Corporate Finance
LLP and a Non-Executive Director of DrugDev Inc. He has a degree
in Modern Languages from the University of Oxford.
Rebecca Hemsted – Finance Director
Rebecca Hemsted was appointed to the Board on 27 January
2014. Ms Hemsted is a Chartered Accountant and has a degree
in Physics from the University of Oxford. She qualified at Deloitte
where she spent six years including three years in New Zealand,
and joined Sagentia from RM plc where she was Business Finance
Partner for the Managed Services Business.
David Courtley – Senior Independent Director
David Courtley was appointed a Non-Executive Director on 15
April 2010. He is also Chief Executive of Mozaic Services and Non-
Executive Director of Parity plc. He was previously Chief Executive
of Phoenix IT Group plc, Chief Executive of Fujitsu Services
Europe and MD of EDS UK. He has a degree in Mathematics from
Imperial College, London.
* Retires by rotation at the next AGM
Professor Keith Glover* – Non-Executive Director
Keith Glover was appointed a Non-Executive Director on 1
October 2011. He is a Fellow of the Royal Society, a Fellow of the
Institute of Electrical and Electronic Engineers, a Fellow of the
Royal Academy of Engineering, and was elected to a Professorship
of Engineering at Cambridge University in 1989, served as
Head of the Department of Engineering from 2002 to 2009 and
became an Emeritus Professor on 1 January 2014. He has a BSc in
Electrical Engineering from Imperial College, London and a PhD
from Massachusetts Institute of Technology.
Sarah Cole – Company Secretary
Sarah Cole joined the Company on 10 January 2011 and was
appointed Company Secretary on 22 March 2012. Ms Cole has
a degree in Jurisprudence from the University of Oxford and
qualified as a Solicitor in 2003.
The Directors present their annual report on the business
of Sagentia Group plc together with consolidated financial
statements and independent auditor’s report for the year
ended 31 December 2013.
Financial instruments and risk management
Disclosures regarding financial instruments are provided
within the Strategic Report and Note 3 to the financial
statements.
Accompanying the Report of the Directors is the Strategic
Report on pages 4 to 11.
Review of the business and its future development
A review of the business and its future development is set
out in the Strategic Report, incorporating the Chairman’s
Statement and Finance Director’s Report.
Cautionary statement
The review of the business and its future development in the
Strategic Report has been prepared solely to provide additional
information to shareholders to assess the Group’s strategies
and the potential for these strategies to succeed. It should
not be relied on by any other party for any other purpose. The
review contains forward looking statements which are made
by the Directors in good faith based on information available
to them up to the time of the approval of these reports and
should be treated with caution due to inherent uncertainties
associated with such statements.
Results and dividends
The results of the Group are set out in detail on page 21.
The Directors propose to pay a dividend of 1.1 pence per share
for the year ended 31 December 2013 (2012: 1.0 pence).
Capital structure
Details of the Company’s issued share capital, together with
details of the movements therein are set out in Note 20 to the
financial statements. The Company has one class of ordinary
shares which carry no right to fixed income.
Directors
The Directors are listed on page 13. Biographies of the
Directors are given on page 13.
Rebecca Hemsted was appointed by the Board on 27 January
2014 and as such will offer herself for re-election at the next
Annual General Meeting. Professor Keith Glover will retire by
rotation and offer himself for re-election at the next Annual
General Meeting.
Directors’ interests in shares and contracts
Directors’ interests in the shares of Sagentia Group plc at 31
December 2013 and 31 December 2012, and any changes
subsequent to 31 December 2013, are disclosed in Note 8. None
of the Directors had an interest in any contract of significance
to which Sagentia was a party during the financial year.
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held at 9.00am on
20 May 2014 at Numis Securities Limited, The London Stock
Exchange Building, 10 Paternoster Square, London, EC4M 7LT.
The notice of the Annual General Meeting contains the full text
of resolutions to be proposed.
Purchase of own shares
At the AGM on 15 May 2013, shareholders approved a resolution
for the Company to buyback up to ten per cent of its own shares.
This resolution remains valid until the later of the conclusion of
the next Annual General Meeting in 2014 or 30 June 2014. As at
4 March 2014, the Directors had not used this authority.
Employees
The average number of persons, including directors, employed
by the Group and their remuneration, is set out in Note 7 to the
financial statements.
Donations
The company operates a scheme whereby it will, on a
discretionary basis, match charitable donations raised by
employees up to a specified limit. Charitable contributions
made in 2013 were £6,000 (2012: £6,000). No political
donations were made during the period (2012: £Nil).
Post balance sheet events
There are no post balance sheet events to disclose.
Auditors
The auditors are willing to continue in office and a resolution
to reappoint them will be proposed at the forthcoming Annual
General Meeting.
Substantial shareholdings
As at the date of this report, Sagentia had been notified of the following significant interests (greater than 3%) in its ordinary
share capital:
Shareholder
Martyn Ratcliffe
Legal & General Investment Management
Hargreave Hale
Ruffer LLP
Charles Stanley & Co
Allianz Global Investors Europe
Ordinary shares held
12,512,906
4,215,539
3,781,770
3,103,685
1,758,206
1,400,000
% held
32.47%
10.94%
9.81%
8.05%
4.56%
3.63%
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc 14
15
Report of the Directors continued
Corporate Governance Report
The Company is registered in England and Wales and listed
on the Alternative Investment Market of the London Stock
Exchange (‘AIM’).
Statement about applying the principles of the Code
Sagentia does not fully comply with the UK Corporate
Governance Code but has reported on the Company’s Corporate
Governance arrangements drawing upon best practice available,
including those aspects of the UK Corporate Governance Code
which the Board considers to be relevant to the Company.
Board of Directors
Biographical details of the Directors and the Company Secretary
are included on page 13.
At 31 December 2013, the Board comprised a Chairman,
Finance Director and three Independent Non-Executive Directors.
All Directors bring a wide range of skills and international
experience to the Board. The Non-Executive Directors hold
meetings without the Chairman and Finance Director present.
The Chairman is primarily responsible for the working of the
Board of Sagentia Group plc and Group corporate strategy,
the running of the business and implementation of the Board
strategy and policy. The Chairman is assisted in the managing
of the business on a day-to-day basis by the Managing Directors
of the operating businesses, the Finance Director and the
Executive team of Sagentia.
High-level strategic decisions are discussed and taken by the
full Board. Investment decisions (above a de minimis level) are
taken by the full Board. Operational decisions are taken by the
Managing Directors within the framework approved in the
annual financial plan and within a framework of Board-approved
authorisation levels.
The Board met 17 times during 2013 (2012: 16). The Board
regulations define a framework of high-level authorities that
maps the structure of delegation below Board level, as well as
specifying issues which remain within the Board’s preserve.
The Board typically meets ten times a year to consider a formal
schedule of matters including the operating performance of
the business and to review Sagentia’s financial plan and
business model.
Non-Executive Directors are appointed for a three year term after
which their appointment may be extended by mutual agreement
after due consideration by the Nomination Committee of the
Board. In accordance with the Company’s Articles of Association,
the longest serving Director must retire at each Annual General
Meeting and each Director must retire in any three year period,
so that over a three year period all Directors will have retired from
the Board and been subject to shareholder re-election.
All Directors have access to the advice and services of the
Company Secretary and other independent professional advisers
as required. Non-Executive Directors have access to key members
of staff and are entitled to attend management meetings in
order to familiarise themselves with all aspects of Sagentia.
It is the responsibility of the Chairman and the Company
Secretary to ensure that Board members receive sufficient and
timely information regarding corporate and business issues to
enable them to discharge their duties.
Relations with shareholders
The Directors seek to build on a mutual understanding of
objectives between Sagentia and its major shareholders by
meeting to discuss long term issues and receive feedback,
communicating regularly throughout the year and issuing
trading updates as appropriate. The Board also seeks to use the
Annual General Meeting to communicate with its shareholders.
Balanced and understandable assessment of position
and prospects
The Board has shown its commitment to presenting balanced
and understandable assessments of Sagentia’s position and
prospects by providing comprehensive disclosures within the
financial report in relation to its activities.
The Board has applied the principles of good governance relating
to Directors’ remuneration as described below. The Board has
determined that there are no specific issues which need to be
brought to the attention of shareholders.
Remuneration strategy
Sagentia operates in a competitive market. If Sagentia is to
compete successfully, it is essential that it attracts, develops and
retains high quality staff. Remuneration policy has an important
part to play in achieving this objective. Sagentia aims to offer
its staff a remuneration package which is both competitive in
the relevant employment market and which reflects individual
performance and contribution. For 2013 the remuneration
package comprised salary, pension contributions, healthcare and
life assurance benefits, a company bonus scheme and, where
appropriate, share options. With effect from 2013, new graduates
also receive a contribution towards repayment of student loans
during their first three years of employment.
Board Committees
The Board maintains three standing committees, being the
Audit, Remuneration and Nomination Committees. The
minutes of all sub-committees are circulated for review and
consideration by all relevant Directors, supplemented by oral
reports from the Committee Chairmen at Board meetings.
Audit Committee
The Audit Committee is chaired by Michael Lacey-Solymar
and currently comprises Michael Lacey-Solymar, David Courtley
and Keith Glover. The Audit Committee met 3 times during
2013 (2012: 3). Further details on the Audit Committee are
provided in the Report of the Audit Committee.
Nomination Committee
The Nomination Committee is chaired by Martyn Ratcliffe and
also comprises David Courtley, Michael Lacey-Solymar and Keith
Glover. The Nomination Committee met once during 2013
(2012: 2). It may take advice from time to time from external
advisers, but did not do so in 2013. The Committee meets
when necessary. The Committee’s primary function is to make
recommendations to the Board on all new appointments and
also to advise generally on issues relating to Board composition
and balance. The Board seeks input from all Directors regarding
nominations for Board positions. All Board appointments have
to be ratified at a General Meeting of the Company.
Remuneration Committee
The Remuneration Committee is chaired by David Courtley
and also comprises Keith Glover and Michael Lacey-Solymar.
The Remuneration Committee met 7 times during 2013
(2012: 5). It may take advice from time to time from external
advisers, but did not do so in 2013. Further details on the
Remuneration Committee are provided in the Report of the
Remuneration Committee.
Meetings of the Board and Subcommittees during 2013 were as follows:
Number of meetings held in 2013
Martyn Ratcliffe
Neil Elton
David Courtley
Professor Keith Glover
Michael Lacey-Solymar
* Attendance by invitation
Board
Meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
17
17/17
17/17
16/17
17/17
17/17
3
3/3*
2/3*
3/3
3/3
3/3
7
7/7*
6/7*
7/7
7/7
7/7
1
1/1
1/1*
1/1
1/1
1/1
Report of the Directors continuedAnnual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc
16
17
Report of the Remuneration Committee
Remuneration Committee
The Committee, which is chaired by David Courtley, also
comprises Michael Lacey-Solymar and Keith Glover.
The Remuneration Committee monitors the Remuneration
policies of Sagentia to ensure that they are consistent with
Sagentia’s business objectives. Its terms of reference include
the recommendation and execution of policy on Director
and Executive management remuneration and for reporting
decisions made to the Board. The Committee both determines
the individual remuneration package of the Chairman and
Finance Director and reviews remuneration levels for all
employees of Sagentia. In accordance with the provisions of
the UK Corporate Governance Code, this responsibility includes
pension rights and any other compensation payments.
The Remuneration Committee recognises that incentivisation
of staff is a key issue for Sagentia, which depends on the skill of
its people for its success. The Remuneration Committee seeks
to incentivise employees by linking individual remuneration
to individual performance and contribution, and to Sagentia
results. During the year the Remuneration Committee
approved grants of share options and confirmed a profit related
bonus scheme for the Company for 2013.
The aim of the Board and the Remuneration Committee is to
maintain a policy that:
• establishes a remuneration structure that will attract,
retain and motivate Executives, senior managers and
other staff of appropriate calibre;
• rewards Executives and senior managers according to
both individual and Group performance;
• establishes an appropriate balance between fixed
and variable elements of total remuneration, with the
performance-related element forming a potentially
significant proportion of the total remuneration package;
• aligns the interests of Executives and senior managers with
those of shareholders through the use of performance-
related rewards and share options in Sagentia.
From time to time the Committee may obtain market data
and information as appropriate when making its comparisons
and decisions and is sensitive to the wider perspective, including
pay and employment conditions elsewhere in Sagentia,
especially when undertaking salary/remuneration reviews.
The remuneration package comprises the following elements:
• basic salary – normally reviewed annually and set to reflect
market conditions, personal performance and benchmarks
in comparable companies;
• annual performance-related bonus – executives, managers
and employees receive annual bonuses related to company
performance. The Chairman does not participate in the
performance-related bonus scheme;
• benefits – benefits include medical insurance, life assurance,
pension contributions and student loan contributions. The
Chairman does not receive these benefits;
• share options – share option grants are reviewed regularly.
Full details of each Director’s remuneration package and
their interests in shares and share options can be found in
Note 8 to the financial statements. There are no elements of
remuneration, other than basic earnings, which are treated
as being pensionable.
Service contracts
The Chairman and Finance Director have employment
contracts that contain notice periods of six months. Non-
Executive Directors’ service contracts may be terminated
on three months’ notice. There are no additional financial
provisions for termination.
Share option plans
The Company adopted an approved and unapproved Share
Option Scheme in 2008, the terms of which were reviewed
and amended in 2010 and 2013 and adopted by shareholders.
Further in 2013, the company adopted a new unapproved
Performance Share Plan which was adopted by shareholders at
the AGM on 15 May 2013. Options granted under the former
schemes were issued at market price whilst options granted
under the new PSP scheme are issued at the nominal share
price. The Remuneration Committee approves any options
granted thereunder. Directors are entitled to participate in
Sagentia’s share option schemes. Independent Non-Executive
Directors do not participate in Sagentia’s share option schemes.
It is the policy of Sagentia to grant share options to Executive
Directors and key employees as a means of encouraging
ownership and providing incentives for performance. To date
share options granted to the Chairman have been specifically
approved by shareholders.
The market price of the shares at 31 December 2013 was
142.0 pence (31 December 2012: 91.5 pence). The highest and
lowest price during the year was 153.0 pence and 88.5 pence
respectively.
Report of the Audit Committee
Audit Committee
The Audit Committee is chaired by Michael Lacey-Solymar
and currently comprises Michael Lacey-Solymar, David Courtley
and Keith Glover.
The Audit Committee has written terms of reference and
provides a mechanism through which the Board can maintain
the integrity of the financial statements of Sagentia and
any formal announcements relating to Sagentia’s financial
performance; to review Sagentia’s internal financial controls
and Sagentia’s internal control and risk management systems;
and to make recommendations to the Board in relation to the
appointment of the external auditor, their remuneration both
for audit and non-audit work, the nature, scope and results
of the audit and the cost effectiveness and the independence
and objectivity of the auditors. A recommendation regarding
the auditors is put to shareholders for their approval in
general meetings.
Provision is made by the Audit Committee to meet the auditors
at least twice a year.
The Board and Audit Committee have approved an extension
to the engagement term of the Senior Statutory Auditor
responsible for the audit opinion in relation to Sagentia
Group plc. The term is extended from 5 to 6 years. The
Audit Committee believes that given the change in Finance
Director in 2014, continuity is important to the quality of the
Group’s audit and is satisfied that the safeguards proposed
by the auditor mean that the extension will not threaten the
objectivity and independence of the audit. Accordingly, the
rotation of the Senior Statutory Auditor will apply after the
year ended 31 December 2014.
Internal controls
In applying the principle that the Board should maintain a
sound system of internal control to safeguard shareholders’
investment and Sagentia’s assets, the Directors recognise that
they have overall responsibility for ensuring that Sagentia
maintains systems to provide them with reasonable assurance
regarding effective and efficient operations, internal control
and compliance with laws and regulations and for reviewing
the effectiveness of that system. However, there are inherent
limitations in any system of control and accordingly even the
most effective system can provide only reasonable and not
absolute assurance against material mis-statement or loss, and
that the system is designed to manage rather than eliminate
the risk of failure to achieve the business objectives.
Sagentia has established procedures necessary to implement
the guidance on internal control issued by the FRC Guidance
on Audit Committees 2010. This includes identification,
categorisation and prioritisation of critical risks within the
business and allocation of responsibility to its Executives and
senior managers.
The key features of the internal control system are described
below:
Control environment – Sagentia is committed to high
standards of business conduct and seeks to maintain these
standards across all of its operations. There are also policies in
place for the reporting and resolution of suspected fraudulent
activities. Sagentia has an appropriate organisational structure
for planning, executing, controlling and monitoring business
operations in order to achieve its objectives.
Risk identification – Management is responsible for the
identification and evaluation of key risks applicable to their
areas of business. These risks are assessed on a continual
basis and may be associated with a variety of internal and
external sources, including infringement of IP, sales channels,
investment risk, staff retention, disruption in information
systems, natural catastrophe and regulatory requirements.
Information systems – Group businesses participate in periodic
operational/strategic reviews and annual plans. The Board
actively monitors performance against plan. Forecasts and
operational results are consolidated and presented to the Board
on a regular basis. Through these mechanisms, performance
is continually monitored, risks identified in a timely manner,
their financial implications assessed, control procedures re-
evaluated and corrective actions agreed and implemented.
Main control procedures – Sagentia has implemented control
procedures designed to ensure complete and accurate
accounting for financial transactions and to limit the exposure
to loss of assets and fraud. Measures taken include segregation
of duties and reviews by management.
Monitoring and corrective action – There are clear and
consistent procedures in place for monitoring the system of
internal financial controls.
This process, which operates in accordance with the FRC
guidance, was maintained throughout the financial year, and
has remained in place up to the date of the approval of these
financial statements. The Board, via the Audit Committee, has
reviewed the systems and processes in place in meetings with
the Finance Director and Sagentia’s auditors during 2013. No
internal audit function is operated outside of the systems and
processes in place, as the Board considers that Sagentia is too
small for a separate function. The Board considers the internal
control system to be adequate for Sagentia.
The auditors have provided services in relation to the annual
audit of the Group, advice and compliance work in relation to
taxation and other advisory work during the year.
Report of the Directors continuedReport of the Directors continuedAnnual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc 18
19
Report of the Directors continued
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 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:
• in so far as each of the Directors is aware, there is no relevant
audit information of which the Company’s auditor is
unaware; and
• the Directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit
information and to establish that the auditors are 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.
Approval
The Report of the Directors was approved by the Board on 4
March 2014 and signed on its behalf:
By order of the Board
Sarah Cole
Company Secretary
Harston Mill, Harston
Cambridge,
CB22 7GG
Report of the Nomination Committee
The Nomination Committee is chaired by Martyn Ratcliffe
and also comprises David Courtley, Michael Lacey-Solymar
and Keith Glover.
The Nomination Committee reviews the composition of
the Board and its effectiveness on an annual basis in order
to ensure that the Board comprises the requisite skills
(corporate, financial, operational and technical) and experience
and reviews how the Board works together as a unit. The
Nomination Committee does not believe that it is appropriate
to set any specific targets with regards diversity, including
gender, although the Committee believes that the search for
board candidates should be conducted, and appointments
made, on merit, against objective criteria and with due regard
for the benefits of diversity on the board.
During the year, the Board conducted a search for a new
Finance Director. Members of the Nomination Committee
recommended the appointment of Rebecca Hemsted to the
Board in November 2013.
Directors’ Responsibilities
The Directors are responsible for preparing the Report of the
Directors, the Strategic 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 Group financial statements, and have elected to prepare
the parent company financial statements, in accordance with
International Financial Reporting Standards as adopted by
the European Union (IFRSs). 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 the 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 estimates that are reasonable and
prudent;
• state whether applicable IFRSs 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.
Independent Auditor’s Report to the
Members of Sagentia Group plc
We have audited the financial statements of Sagentia Group
plc for the year ended 31 December 2013 which comprise
the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated and
company statement of changes in shareholders’ equity, the
consolidated and company balance sheet, the consolidated
and company statement of cash flows and the related notes.
The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union
and, as regards the parent Company financial statements, as
applied in accordance with the provisions of the Companies
Act 2006.
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.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 18, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the APB’s website at
www.frc.org.uk/apb/scope/private.cfm
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the Company’s affairs as at
31 December 2013 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared
in accordance with IFRS as adopted by the European Union;
• the parent Company financial statements have been
properly prepared in accordance with IFRS as adopted by
the European Union 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.
Opinion on the matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report
and Report of the Directors for the financial year for which
the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the 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.
Alison Seekings
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Cambridge
4 March 2014
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc
Financial
Statements
and Notes to the Financial Statements
Consolidated Income Statement
For the year ended 31 December 2013
Revenue
Operating expenses
Adjusted operating profit
Amortisation of acquisition related intangible assets
Share based payment charge
Other exceptional cost
Operating profit
Finance costs
Finance income
Profit before income tax
Income tax
Profit for the year
Profit for the year attributable to equity holders of the parent
Earnings per share
Earnings per share from continuing operations (basic)
Earnings per share from continuing operations (diluted)
Note
4
5
13
7, 20
4
6
6
9
11
11
Group
21
2012
£000
22,268
(18,383)
3,885
-
(155)
(500)
3,230
(319)
87
2,998
126
3,124
3,124
7.9p
7.5p
2013
£000
30,596
(24,852)
5,744
(109)
(283)
-
5,352
(467)
54
4,939
(306)
4,633
4,633
12.4p
11.2p
2013 Annual Report and Financial StatementsSagentia Group plc
22
Consolidated Statement of
Comprehensive Income
Consolidated and Company Statement
of Changes in Shareholders’ Equity
For the year ended 31 December 2013
For the year ended 31 December 2013
Group
Group
Issued
capital
Share
premium
Treasury
stock
Merger
reserve
Translation
reserve
Share based
payment
reserve
Retained
earnings
Profit for the year
Other comprehensive income
Items that will or may be reclassified to profit or loss:
Fair value gain / (loss) on interest rate swap, net of tax
Exchange differences on translating foreign operations
Other comprehensive expense for the year
Total comprehensive income for the year
Total comprehensive income for the year attributable to owners of the parent
2013
£000
4,633
(41)
(27)
(68)
4,565
4,565
2012
£000
3,124
-
(36)
(36)
3,088
3,088
23
Total
share-
holders’
funds
£000
26,420
(4,458)
45
155
1
(4,257)
3,124
£000
6,825
-
-
-
(6)
(6)
3,124
-
(36)
3,124
9,943
9,943
(373)
-
(366)
-
(739)
4,633
(41)
-
3,088
25,251
25,251
376
959
(366)
283
1,252
4,633
(41)
(27)
4,592
4,565
Balance at 1 January 2012
Purchase of own shares
New shares issued
Share based payment charge
Issue of shares out of treasury stock
Transactions with owners
Profit for the year
Other comprehensive income:
Exchange differences on translating
foreign operations
Total comprehensive income
for the year
Balance at 31 December 2012
Balance at 1 January 2013
Issue of shares out of treasury stock
Acquisition of OTM Consulting
Dividends paid
Share based payment charge
Transactions with owners
Profit for the year
Other comprehensive income:
Fair value gain / (loss) on interest rate swap
Exchange differences on translating
foreign operations
Total comprehensive income
for the year
£000
418
-
2
-
-
2
-
-
-
420
420
-
-
-
-
-
-
-
-
-
£000
7,538
-
43
-
-
43
-
-
-
7,581
7,581
-
194
-
-
194
-
-
-
-
£000
-
(4,458)
-
-
7
(4,451)
-
-
-
£000
10,343
-
-
-
-
-
-
-
-
(4,451)
10,343
(4,451)
749
765
-
-
1,514
-
-
-
-
10,343
-
-
-
-
-
-
-
-
-
Balance at 31 December 2013
420
7,775
(2,937)
10,343
£000
258
-
-
-
-
-
-
(36)
(36)
222
222
-
-
-
-
-
-
-
(27)
(27)
195
£000
1,038
-
-
155
-
155
-
-
-
1,193
1,193
-
-
-
283
283
-
-
-
-
Company
Issued
capital
Share
premium
Treasury
stock
Merger
reserve
Translation
reserve
Share based
payment
reserve
Retained
earnings
£000
£000
Balance at 1 January 2012
Purchase of own shares
New shares issued
Share based payment charge
Issue of shares out of treasury stock
Transactions with owners
Profit and total comprehensive
income for the year
Balance at 31 December 2012
Balance at 1 January 2013
Issue of shares out of treasury stock
Acquisition of OTM Consulting
Dividends paid
Share based payment charge
Transactions with owners
Profit and total comprehensive
income for the year
£000
418
-
2
-
-
2
-
420
420
-
-
-
-
-
-
£000
7,538
-
43
-
-
£000
-
(4,458)
-
-
7
43
(4,451)
-
7,581
7,581
-
194
-
-
194
-
(4,451)
749
765
-
-
1,514
-
-
£000
10,343
-
-
-
-
-
-
10,343
-
-
-
-
-
-
(4,451)
10,343
Balance at 31 December 2013
420
7,775
(2,937)
10,343
1,476
13,796
31,068
Total
share-
holders’
funds
£000
29,397
(4,458)
45
43
1
(4,369)
1,333
26,361
26,361
376
959
(366)
28
997
4,456
31,814
£000
10,859
-
-
(6)
(6)
(12)
239
-
-
49
-
49
-
1,333
288
288
-
-
-
28
28
12,180
12,180
(373)
-
(366)
-
(739)
-
4,456
316
15,897
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc
24
25
Consolidated and Company Balance Sheet
Consolidated and Company Statement
of Cash Flows
At 31 December 2013
For the year ended 31 December 2013
Company
Group
Note
2013
£000
2012
£000
2013
£000
2012
£000
Note
Profit before income tax
Depreciation and amortisation charges
Share based payment charge
(Increase) / decrease in receivables
Increase / (decrease) in payables
Cash generated from operations
UK corporation tax paid
Foreign corporation tax received / (paid)
Cash flows from operating activities
Purchase of property, plant and equipment
Purchase of subsidiary undertaking, net of cash received
Cash flows used in investing activities
Issue of ordinary share capital
Issue of shares out of treasury
Repurchase of own shares
Dividends paid
Proceeds from bank loans
Repayment of bank loans
Proceeds from other loan
Repayment of other loan
Cash flows from / (used in) financing activities
Increase / (decrease) in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Exchange gains / (losses) on cash
Cash and cash equivalents at the end of the year
17
ASSETS
Non-current assets
Goodwill
Acquisition related intangible assets
Property, plant and equipment
Investments
Deferred income tax assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Non-current liabilities
Borrowings
Other payables
Derivative financial liabilities
Deferred income tax liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Treasury stock
Merger reserve
Translation reserve
Share based payment reserve
Retained earnings
Total equity
13
13
14
15
10
16
17
18
18
18
19
19
19
10, 19
20
-
-
-
16,818
-
16,818
9,939
5,281
15,220
32,038
221
3
-
224
-
-
-
-
-
-
-
-
10,559
-
10,559
5,770
10,223
15,993
26,552
180
11
-
191
-
-
-
-
-
224
191
2,058
3,577
14,482
-
2,634
22,751
5,272
22,428
27,700
50,451
7,105
155
1,020
8,280
8,778
112
41
2,172
11,103
19,383
-
-
14,302
-
3,323
17,625
3,027
19,179
22,206
39,831
6,096
32
821
6,949
5,411
-
-
2,220
7,631
14,580
31,814
26,361
31,068
25,251
420
7,775
(2,937)
10,343
-
316
15,897
31,814
420
7,581
(4,451)
10,343
-
288
12,180
26,361
420
7,775
(2,937)
10,343
195
1,476
13,796
31,068
420
7,581
(4,451)
10,343
222
1,193
9,943
25,251
The financial statements were approved by the Board of Directors and signed on its behalf by
Rebecca Hemsted
Martyn Ratcliffe
On 4 March 2014
Finance Director
Chairman
The accompanying Notes are an integral part of the Consolidated and Company Balance Sheet.
The Company’s registered number is 06536543.
Company
Group
2013
£000
4,457
-
28
(4,169)
33
349
(1)
-
348
-
(5,300)
(5,300)
-
376
-
(366)
-
-
-
-
10
(4,942)
10,223
-
5,281
2012
£000
1,344
-
49
3,403
(247)
4,549
(11)
-
4,538
-
-
-
45
1
(4,458)
-
-
-
-
-
(4,412)
126
10,097
-
10,223
2013
£000
4,939
441
283
(1,321)
(120)
4,222
(339)
46
3,929
(419)
(3,770)
(4,189)
-
376
-
(366)
10,000
(6,450)
10
(28)
3,542
3,282
19,179
(33)
22,428
2012
£000
2,998
236
155
300
318
4,007
(264)
(61)
3,682
(417)
-
(417)
45
1
(4,458)
-
-
(800)
-
(35)
(5,247)
(1,982)
21,198
(37)
19,179
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plc 26
27
Notes to the Financial Statements
For the year ended 31 December 2013
1 General information
Sagentia Group plc (the ‘Company’) and its subsidiaries
(together ‘Sagentia’ or ‘Group’) is an international science
and technology consulting group providing outsourced R&D
consultancy and technology advisory services. The Company is
the ultimate parent company in which results of all Sagentia
companies are consolidated.
Sagentia develops new and novel technologies in the Medical
(Diagnostics, Patient Care and Surgical) and Commercial
(Industrial, Consumer and Oil & Gas) industries, and
technology advisory services. Sagentia’s facilities include
offices and laboratories located in Europe in Harston near
Cambridge, London and Guildford, in the US in Boston,
Massachusetts and Houston, Texas, and in Dubai.
The Group and Company accounts of Sagentia Group plc were
prepared under IFRS as adopted by the European Union, and
have been audited by Grant Thornton UK LLP. Accounts are
available from the company’s registered office; Harston Mill,
Harston, Cambridge, CB22 7GG.
The Company is incorporated and domiciled in England and
Wales under the Companies Act 2006 and has its primary
listing on the AIM Market of the London Stock Exchange (SAG.L).
The value of Sagentia Group plc shares, as quoted on the
London Stock Exchange plc at 31 December 2013, was 142.0
pence per share (31 December 2012: 91.5 pence).
These consolidated financial statements have been approved
for issue by the Board of Directors on 4 March 2014.
2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated.
2.1 Basis of preparation
The consolidated financial statements of Sagentia have
been prepared under the historical cost convention, as
modified by the revaluation of certain financial instruments
at fair value. The financial statements are in accordance
with International Financial Reporting Standards (IFRS) as
adopted by the EU.
Of the new standards and interpretations effective for the
year ended 31 December 2013, there was no impact on the
presentation of the financial statements of Sagentia other
than in disclosure. The accounting policies have been applied
consistently throughout the Group for the purposes of
preparation of these consolidated financial statements.
No income statement is presented for the Company as
provided by Section 408 of the Companies Act 2006. The
Company’s profit for the financial period after tax, determined
in accordance with the Act, was £4,456,000 (2012: £1,333,000).
The Standards and Interpretations in issue but not effective for
accounting periods commencing on 1 January 2013 that may
impact on Sagentia going forward are listed below. Sagentia
has not adopted these early.
Number
Title
IFRS 10
IFRS 11
IFRS 12
IAS 27 (Revised)
Amendments to IAS 32
Amendments to IFRS 10, 11 and 12
Amendments to IAS 36
Amendments to IAS 39
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Separate Financial Statements
Offsetting Financial Assets and Financial Liabilities
Transition Guide
Recoverable Amount Disclosures for Non-Financial Assets
Novation of Derivatives and Continuation of Hedge Accounting
Effective
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
All standards and interpretations are not expected to have any significant impact on Sagentia’s financial statements in their
periods of initial application.
2 Summary of significant accounting policies
(continued)
2.1 Basis of preparation (continued)
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process
of applying Sagentia’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 26.
The Group’s business activities, together with the factors likely
to affect its future development, performance and position
are set out in the Strategic Report. The financial position of the
Group, its cash flows, liquidity position and borrowing facilities
are also described in the Strategic Report. In addition, Note
3 to the financial statements and the Report of the Directors
include the Group’s objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposure to credit risk and liquidity risk.
The Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence
for the foreseeable future and therefore continue to adopt the
going concern basis of accounting in preparing the annual
financial statements.
2.2 Basis of consolidation
The basis of consolidation is set out below:
Subsidiaries – subsidiaries are entities over which Sagentia
has the power to govern the financial and operating policies
accompanying a shareholding of more than one half of the
voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered
when assessing whether Sagentia controls another entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to Sagentia. They are de-consolidated
from the date that control ceases. Intercompany balances and
transactions between Group companies are eliminated on
consolidation.
Investment in subsidiaries – in the Company accounts,
investments in subsidiaries are stated at cost less any provision
for impairment where appropriate.
Business combinations – the acquisition of subsidiaries is
accounted for using the acquisition method. The cost of
the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given and liabilities
incurred or assumed in exchange for control. The acquired
company’s identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS
3 Business Combinations are recognised at their fair value at
the acquisition date. Acquisition expenses are expensed as
incurred.
2.3 Segment reporting
Under IFRS 8, the accounting policy for identifying segments
is based on the internal management reporting information
that is regularly reviewed by the chief operating decision
makers (CODMs).
There are two segments identified; Core Business and Other.
Core Business activities includes all ‘fees for services’ operations
including recharged materials and product and licence income
generated directly from these activities. ‘Other’ activities
include rental income from Harston Mill and external IT
services. The constituent sectors (Medical and Commercial)
are reviewed by the CODM at the revenue / sales level only.
2.4 Intangible assets
All intangible assets, except goodwill, are stated at cost less
accumulated amortisation and any accumulated impairment
losses.
Goodwill – goodwill represents the amount by which the fair
value of the cost of a business combination exceeds the fair
value of net assets acquired. Goodwill is not amortised and is
stated at cost less any accumulated impairment losses.
The recoverable amount of goodwill is tested for impairment
annually or when events or changes in circumstance indicate
that it might be impaired. Impairment charges are deducted
from the carrying value and recognised immediately in profit
or loss. For the purpose of impairment testing, goodwill is
allocated to each of the Group’s cash generating units expected
to benefit from the synergies of the combination. If the
recoverable amount of the cash generating unit is less than the
carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated
to the unit and then to the other assets of the unit pro-rata
on the basis of the carrying amount of each asset in the unit.
An impairment loss recognised for goodwill is not reversed
in a subsequent period.
Acquisition related intangible assets – net assets acquired
as part of a business combination includes an assessment
of the fair value of separately identifiable acquisition related
intangible assets, in addition to other assets, liabilities and
contingent liabilities purchased. These are amortised over
their useful lives which are individually assessed. The
estimated useful economic life for customer contracts and
relationships is 11 years.
2.5 Research and development expenditure
Research and development expenditure is written off as
incurred.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continued
28
29
2 Summary of significant accounting policies
(continued)
2.6 Property, plant and equipment
Land and buildings as shown in the Notes to the financial
statements comprise offices and laboratories at Harston
Mill, Harston, Cambridge, UK. Land and buildings are shown
at historical cost less accumulated depreciation. Historical
cost includes expenditure that is directly attributable to the
acquisition of the items.
2.8 Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently measured at amortised cost using the
effective interest method.
2.9 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, together with short term, liquid investments that are
readily convertible to a known amount of cash and that are
subject to a minimal risk of changes in value.
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it
is probable that the future economic benefit associated with
the item will flow to Sagentia and the cost of the item can
be measured reliably. All other repairs and maintenance are
charged to the income statement during the financial period
in which they are incurred.
2.10 Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in
the income statement over the period of the borrowings using
the effective interest method.
Land is not depreciated. Depreciation on buildings is calculated
using the reducing balance method to calculate their cost less
their residual values over their economic life as follows:
Borrowings are classified as current liabilities unless Sagentia
has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
Buildings
25 years
Depreciation on other assets is calculated using the straight-
line method to allocate their cost less their residual values over
their estimated useful lives, as follows:
Furniture and fittings
Equipment
3-5 years
3 years
Acquired computer software licences are included within
equipment. These are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software.
The asset’s residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date. An
asset’s carrying amount is written down immediately to its
recoverable amount, when an indicator of impairment is
identified.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in the
income statement.
2.7 Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established
when there is objective evidence that Sagentia will not be able
to collect all the amounts due according to the original terms
of receivables. The amount of the provision is the difference
between the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognised in the
income statement.
2.11 Derivative financial instruments
The Group holds derivative financial instruments to hedge its
foreign currency and interest rate risk exposures.
Derivatives are recognised initially at fair value and
attributable transaction costs are recognised in profit or loss
as incurred. Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are accounted
for as described below. Fair value measurements are classified
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements.
On initial designation of the derivative as the hedging
instrument, the Group formally documents the relationship
between the hedging instrument and hedged item, including
the risk management objectives and strategy in undertaking
the hedge transaction and the hedged risk, together with
the methods that will be used to assess the effectiveness of
the hedging relationship. The Group makes an assessment,
both at the inception of the hedge relationship as well as on
an ongoing basis, of whether the hedging instruments are
expected to be “highly effective” in offsetting the changes in
the fair value or cash flows of the respective hedged items
attributable to the hedged risk, and whether the actual results
of each hedge are within a range of 80% to 125%. For a cash flow
hedge of a forecast transaction, the transaction should be highly
probable to occur and should present an exposure to variations
in cash flows that could ultimately affect reported profit or loss.
When a derivative is designated as the hedging instrument
in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognised asset or liability
or a highly probable forecast transaction that could affect
profit or loss, the effective portion of changes in the fair
value of the derivative is recognised in other comprehensive
income and presented in the hedging reserve in equity. Any
ineffective portion of changes in the fair value of the derivative
is recognised immediately in profit or loss.
2 Summary of significant accounting policies
(continued)
2.14 Dividend income
Dividend income is recognised when the right to receive
payment is established.
2.11 Derivative financial instruments
(continued)
In other cases the amount accumulated in equity is reclassified
to profit or loss in the same period that the hedged item affects
profit or loss. If the hedging instrument no longer meets the
criteria for hedge accounting, expires or is sold, terminated or
exercised, or the designation is revoked, then hedge accounting
is discontinued prospectively. If the forecast transaction is
no longer expected to occur, then the balance in equity is
reclassified in profit or loss.
2.12 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Where the Company purchases the Company’s equity share
capital (Treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income taxes)
is deducted from equity attributable to the Company’s equity
holders until the shares are cancelled, reissued or disposed
of. Where such shares are subsequently sold or reissued,
any consideration received, net of any directly attributable
incremental transaction costs and the related income tax
effects are included in equity attributable to the Company’s
equity holders.
2.13 Revenue recognition
Consulting revenue represents the fair value of the
consideration received or receivable for consulting services
on each client assignment provided during the year based on
the time worked at agreed fee rates, including expenses and
disbursements but excluding value added tax and other similar
sales taxes.
No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration due or associated costs.
An expected loss on contract is recognised immediately in the
income statement.
2.15 Foreign currency
(a) Functional and presentation currency
Items included in the financial statements of each of Sagentia
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(‘the functional currency’). The consolidated financial
statements are presented in sterling, which is the Company’s
functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of
the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in
the income statement.
In respect of translation differences on non-monetary items,
items held at cost are translated at the exchange rate at the
date of transaction.
(c) Group companies
The results and financial position of all Sagentia entities (none
of which has the currency of a hyperinflationary economy) that
have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
(i)
assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
(ii) income and expenses for each income statement are
translated at average exchange rates (unless this average
is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the
transactions);
Product and licence income is recognised in the related period
in line with the agreement or contract.
(iii) all resulting exchange differences are recognised as a
separate component of equity; and
Property income from leases over property held is recognised in
the related period on a straight line basis over the lease term.
IT support fees are recognised in the related period in line with
the contract.
Investment income is recognised in the income statement in
the period in which it arises.
(iv) on disposal of a foreign subsidiary the accumulated
translation differences recognised in equity are reclassified
to profit and loss and recognised as part of the gain or loss
on disposal.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued
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31
2 Summary of significant accounting policies
(continued)
3 Financial risk management
2.19 Leases
In accordance with IAS17, the economic ownership of a
leased asset is transferred to the lessee if the lessee bears
substantially all the risks and rewards related to the ownership
of the leased asset. The related asset is recognised at the time
of inception of the lease at the fair value of the leased asset
or, if lower, the present value of the minimum lease payments
plus incidental payments, if any, to be borne by the lessee.
A corresponding amount is recognised as a finance leasing
liability. Leases of land and buildings are split into land and
buildings elements according to the relative fair values of the
leasehold interests at the date the asset is initially recognised.
The interest element of leasing payments represents a constant
proportion of the capital balance outstanding and is charged to
the income statement over the period of the lease.
All other leases are treated as operating leases and are charged
on a straight line basis over the lease term, even if payments
are not made on such a basis.
Income from property leases is recognised in the related period
on a straight line basis over the lease term. The majority of
property leases are subject to mutual notice periods of up to 6
months.
2.20 Dividends
Dividends are recognised as a liability in the period in
which the shareholders’ right to receive payment has been
established.
3.1 Financial risk factors
Sagentia’s activities expose it to a variety of financial risks:
market risk (including currency risk and fair value interest
risk), credit risk, liquidity risk and cash flow interest rate risk.
Sagentia’s overall financial risk management programme
focuses on the unpredictability of financial markets and seeks
to minimise potential adverse effects on Sagentia’s financial
performance. Sagentia uses derivative financial instruments
to hedge certain risk exposures.
(a) Foreign currency sensitivity
Sagentia operates internationally and is exposed to foreign
exchange risk arising from various currency exposures,
primarily with respect to the US dollar and Euro. Foreign
exchange risk arises from commercial transactions, recognised
assets and liabilities.
To manage the Group’s foreign exchange risk arising from
commercial transactions, recognised assets and liabilities,
entities in Sagentia may use forward contracts and other
instruments. Foreign exchange risk arises when commercial
transactions and recognised assets and liabilities are
denominated in a currency that is not the entity’s functional
currency. The Group finance function is responsible for
managing the net position in each foreign currency by using
external forward currency contracts. There were no open
forward currency contracts at the year end.
Sagentia has certain investments in foreign operations, whose
net assets are exposed to foreign currency translation risk.
2 Summary of significant accounting policies
(continued)
2.16 Employee benefits
(a) Pension obligations
Group companies operate various pension schemes. The
schemes are generally funded through payments to insurance
companies based on a percentage of salary earned, currently
ranging between 0% and 8%. These are defined contribution
plans. A defined contribution plan is a pension plan under
which the Group pays fixed contributions into publicly or
privately administered pension insurance plans. The Group
has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior periods.
The contributions are recognised as an employee benefit
expense when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Sagentia Inc. and OTM Consulting Inc. provide 401(k) benefits
to employees. Sagentia has no further payment obligations
once the contributions have been paid.
(b) Share based compensation
Sagentia operates an equity-settled, share based compensation
plan. The fair value of the employee services received in
exchange for the grant of the options is recognised as an
expense. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the
options granted, as calculated by using an appropriate
valuation method. The Black-Scholes model excludes the
impact of any non-market vesting conditions (for example,
profitability and sales growth targets). The Monte Carlo
and Binomial Option Pricing models build in any market
performance conditions. Non-market vesting conditions are
included in assumptions about the number of options that are
expected to become exercisable. At each balance sheet date,
the entity revises its estimates of the number of options that
are expected to become exercisable. It recognises the impact
of the revision of original estimates, if any, in the income
statement, and a corresponding adjustment to equity over the
remaining vesting period.
The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value)
and share premium when the options are exercised.
The share based compensation charge in the Company
financial statements is based only on those option holders
employed directly by the Company.
(c) Termination benefits
Termination benefits are payable when employment is
terminated before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for
these benefits. Sagentia recognises termination benefits
when it is demonstrably committed to either: terminating
the employment of current employees according to a detailed
formal plan without possibility of withdrawal; or providing
termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than
12 months after balance sheet date are discounted to
present value.
(d) Profit-sharing and bonus plans
Sagentia recognises a liability and an expense for bonuses and/
or profit-sharing, based on the incentive plans approved by
the Remuneration committee. Sagentia recognises a provision
where contractually obliged or where there is a past practice
that has created a constructive obligation.
2.17 Deferred income tax
Deferred income tax is provided, using the liability method, on
temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, if the deferred income tax arises
from goodwill, the initial recognition of an asset or liability in
a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable
profit nor loss, it is not accounted for. Deferred income tax is
determined using tax rates (and laws) that have been enacted
or substantively enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences
arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by
Sagentia and it is probable that the temporary difference will
not reverse in the foreseeable future.
2.18 Income tax
Income tax is provided at amounts expected to be paid
(or recovered) using the tax rates and laws of the relevant
countries that have been enacted or substantively enacted by
the balance sheet date.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 32
33
3 Financial risk management (continued)
3 Financial risk management (continued)
3.1 Financial risk factors (continued)
(a) Foreign currency sensitivity (continued)
Foreign currency denominated financial assets and liabilities, translated into GBP at the closing rate, are as follows:
2013
£000
Financial assets
Financial liabilities
Exposure
2012
£000
Financial assets
Financial liabilities
Exposure
US$
Euro
Others
Total
3,095
(87)
3,008
966
(2)
964
-
-
-
4,061
(89)
3,972
US$
Euro
Others
Total
1,733
(10)
1,723
204
(7)
197
2
-
2
1,939
(17)
1,922
All foreign currency denominated financial assets and liabilities are classified as current.
The following table illustrates the sensitivity of the net movement on reserves and equity in regards to Sagentia’s financial assets
and financial liabilities and the US dollar/GBP exchange rate and Euro/GBP exchange rate. It assumes a +/- 10.0% change of the
GBP/US dollar exchange rate for the year ended 31 December 2013 (2012: 10.0%). A +/- 10.0% change is considered for the GBP/
Euro exchange rate (2012: 10.0%).
If the GBP had strengthened against the US dollar and Euro by 10.0% (2012: 10.0%) respectively then this would have had the
following impact:
2013
£000
Income statement
Equity
2012
£000
Income statement
Equity
US$
(273)
(273)
US$
(159)
(159)
Euro
(88)
(88)
Euro
(19)
(19)
Total
(361)
(361)
Total
(178)
(178)
For a 10% weakening of GBP against the relevant currency, there would be a comparable but opposite impact on the income
statement and equity.
The Company held no financial assets or liabilities in foreign currencies at the start or end of the year.
The actual rate movement against the US dollar and Euro for the year was +2.1% (2012: +5.0%) and -2.0% (2012: +3.0%) respectively.
Exposures to foreign exchange rates vary during the year depending on the volume and value of overseas transactions.
3.1 Financial risk factors (continued)
(b) Interest rate sensitivity
Sagentia manages its longer term cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate
swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, Sagentia raises long term
borrowings at floating rates and swaps them into fixed rates that are lower than those available if Sagentia borrowed at fixed rates
directly. Under the interest-rate swaps, Sagentia agrees with other parties to exchange, at specified intervals (typically quarterly),
the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional
principal amounts.
Sagentia’s bank borrowings and its interest rate profile are as follows:
Sterling – bank loan
Weighted average interest rate
Sterling – fixed rate bank loan
Sterling – floating rate bank loan
2013
£000
9,750
2012
£000
6,200
%
%
3.89%
Libor+2.0%
4.71%
Libor+2.5%
For benchmark rates of interest, Sagentia refers to the LIBOR rate. The bank loan is secured via a fixed charge over certain assets of
Sagentia and is repayable as disclosed in Note 21. Terms and conditions of the interest rate swap are as disclosed in Note 21.
(c) Credit risk analysis
Sagentia has policies in place to ensure that sales are made to clients with an appropriate credit history. Derivative counterparties
and cash transactions are limited to high-credit-quality financial institutions although counterparty risk is not negligible. Sagentia
has policies that limit the amount of credit exposure to any financial institution.
Sagentia’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the balance sheet date, as
summarised below:
Cash and cash equivalents
Trade and other receivables
Company
Group
2013
£000
5,281
9,918
15,199
2012
£000
10,223
5,736
15,959
2013
£000
22,428
4,764
27,192
2012
£000
19,179
2,689
21,868
Sagentia monitors defaults of customers and other counterparties, identified either individually or by group and incorporates this
information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers
and other counterparties are obtained and used. Sagentia’s policy is to deal only with creditworthy counterparties or to require
settlement in advance, although there can be no certainty that counterparty creditworthiness will be maintained. Cash balances
are held with more than one creditworthy institution.
Management reviews the credit status of the financial institutions with whom it holds its deposits.
Sagentia’s management considers that all the above financial assets that are not impaired for each of the reporting dates under
review are of good credit quality, including those that are past due.
None of Sagentia’s financial assets are secured by collateral or other credit enhancements.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 34
35
3 Financial risk management (continued)
3 Financial risk management (continued)
3.1 Financial risk factors (continued)
(d) Liquidity risk analysis
Sagentia manages its liquidity needs by monitoring scheduled debt servicing payments for long term financial liabilities as well as
cash-outflows due in day-to-day business. Liquidity needs are monitored on a weekly and monthly basis. Long term liquidity needs
for a quarterly and semi-annual period are reviewed monthly.
Sagentia maintains cash to meet its liquidity requirements in interest bearing current accounts.
As at 31 December 2013, Sagentia’s financial liabilities have contractual maturities which are summarised below:
2013
Within
Bank borrowings
Other borrowings
Interest on bank borrowings
Trade payables
Accruals
Financial instruments
Contingent consideration
2012
Within
Bank borrowings
Other borrowings
Interest on bank borrowings
Trade payables
Accruals
Current
< 6 months
£000
500
10
182
342
3,479
-
-
4,513
< 6 months
£000
400
11
144
63
2,632
3,250
Current
6 to 12 months
£000
500
10
173
-
-
-
-
6 to 12 months
£000
400
10
134
-
-
Non-current
1 to 5 years
£000
8,750
28
995
-
-
41
104
Non-current
1 to 5 years
£000
5,400
11
396
-
-
> 5 years
£000
-
-
-
-
-
-
-
-
> 5 years
£000
-
-
-
-
-
-
544
5,807
This compares to the maturity of Sagentia’s financial liabilities in the previous reporting period as follows:
683
9,918
3.1 Financial risk factors (continued)
(e) Summary of financial assets and liabilities by category
The carrying amounts of Sagentia’s financial assets and liabilities as recognised at the balance sheet date of the reporting periods
under review may also be categorised as follows:
Loans and receivables:
- Trade receivables
- Other receivables
- Cash and cash equivalents
Financial liabilities at amortised cost:
- Non-current borrowings
- Current borrowings
- Trade payables
- Accruals
Derivatives used for hedging:
- Financial instruments
Financial liabilities measured at fair value through profit or loss:
- Contingent consideration
Company
Group
2013
£000
-
9,918
5,281
15,199
-
-
24
173
197
-
-
-
-
2012
£000
-
5,736
10,223
15,959
-
-
1
127
128
-
-
-
-
2013
£000
3,544
1,220
22,428
27,192
8,778
1,020
342
3,479
13,619
41
41
104
104
2012
£000
2,388
301
19,179
21,868
5,411
821
63
2,632
8,927
-
-
-
-
3.2 Fair value estimation
Financial assets and liabilities measured at fair value in the balance sheet are grouped into three levels based on the significance
used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:
• level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities
• level 2 – inputs other than quoted market prices included within level 1 that are observable for an asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• level 3 – input for the asset or liability that are not based on observable market data (unobservable inputs)
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the
fair value measurement.
The Group has measured the interest rate swap and the contingent consideration on the acquisition of Quadro Design Limited
(formerly QDA Limited) (‘Quadro’) at fair value and these have been measured under level 2 and level 3 respectively.
The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values,
in consultation with third party valuation specialists for complex valuations. The valuation techniques used for instruments
categorised in Levels 2 and 3 are described below:
Interest rate swap:
The fair value is estimated by discounting the future contracted cash flows, using readily available market data.
Contingent consideration:
The fair value of contingent consideration related to the acquisition of Quadro (refer to Note 22) is estimated using a present value
technique and is calculated by probability-weighting the estimated future cash outflows.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 36
37
3 Financial risk management (continued)
4 Segment information
3.3 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of
capital and to provide funds for merger and acquisition activity.
The Group primarily views its capital as being its shareholders’ funds, net funds (being gross cash less borrowings) and the
freehold property at Harston Mill.
Total shareholders’ funds
Net Funds (cash less borrowings)
Freehold property at Harston Mill
Group
2013
£000
31,068
12,630
13,657
2012
£000
25,251
12,947
13,724
Shareholders’ funds
In 2012 Sagentia Limited paid a dividend distribution to Sagentia Group plc of £2.0 million and a further £5.0 million in 2013. In
addition, with the liquidation of Sagentia Group AG the Company was able to release an intercompany provision which along with
profits generated by the Company in year ended 31 December 2013 have resulted in the Company having distributable reserves of
£16.1 million at 31 December 2013 (2012: £12.2 million).
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return
capital to shareholders or issue new shares. The Board will recommend the payment of a dividend of 1.1 pence per share at the
forthcoming AGM (2012: 1.0 pence). The Board anticipates recommending a single dividend being paid each year.
Net funds
The net funds of the Group have decreased marginally during 2013 as a result of the acquisition of OTM, of which £5.3 million net
consideration was paid in cash, offset by effective cash flow management as set out in the Consolidated Statement of Cash Flows.
Details of the Group’s borrowings are set out in Note 21 which summarises the terms of the new loan and interest swap
arrangement.
Freehold property
Details of the Freehold Property are set out in Note 14.
Sagentia is organised on a worldwide basis into two segments, Core Business and Other. Core Business activities include the two
industry sectors (Medical and Commercial) which Sagentia services and includes all Consultancy fees for services operations,
including recharged expenses and product/licence revenue generated directly from these activities. ‘Other’ activities include rental
income from Harston Mill and income from the provision of external IT services. The segmental analysis is reviewed up to adjusted
operating profit. Other resources are shared across the Group.
Year ended 31 December 2013
Fees
IT support
Property income
Recharged project expenses
Product and licence income
Revenue
Adjusted operating profit
Amortisation of acquisition related intangible assets
Share based payments
Operating profit
Finance charges (net)
Profit before income tax
Tax charge
Profit for the year from continuing operations
Year ended 31 December 2012
Fees
IT support
Property income
Recharged project expenses
Product and licence income
Revenue
Adjusted operating profit
Share based payments
Other exceptional cost
Operating profit
Finance charges (net)
Profit before income tax
Tax charge
Profit for the year from continuing operations
Core Business
£000
25,765
-
-
2,105
463
28,333
Other
£000
-
637
1,171
455
-
2,263
5,962
(218)
Core Business
£000
17,930
-
-
1,499
170
19,599
Other
£000
-
796
1,363
510
-
2,669
3,661
224
Total
£000
25,765
637
1,171
2,560
463
30,596
5,744
(109)
(283)
5,352
(413)
4,939
(306)
4,633
Total
£000
17,930
796
1,363
2,009
170
22,268
3,885
(155)
(500)
3,230
(232)
2,998
126
3,124
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued
38
39
4 Segment information (continued)
6 Finance income and finance costs
Geographical segments
Revenue and non-current assets (excluding deferred tax assets) by geographical area are as follows:
Finance costs include all interest-related income and expenses through profit or loss. The following have been included in the
income statement for the reporting periods presented:
United Kingdom
Other European countries
North America
Other
Total
2013
2012
Revenue
£000
7,430
3,424
19,111
631
30,596
Non-current
assets
£000
20,110
-
7
-
20,117
Revenue
£000
8,306
3,038
10,924
-
22,268
Non-current
assets
£000
14,291
-
11
-
14,302
For the purpose of the analysis of revenue, geographical markets are defined as the country or area in which the client is based.
Non-current assets are allocated based on their physical location.
Year ended 31 December
Finance income
Bank interest receivable and similar income
Finance costs
Bank borrowings
7 Employee benefit expense
Employment costs are shown below:
During 2013, £3.8 million or 12% (2012: £2.2 million; 10%) of the Group’s revenues depended on a single customer in the Core
Business segment, based in North America.
Year ended 31 December
Group
2013
£000
54
2012
£000
87
(467)
(319)
Group
2013
£000
12,106
1,722
283
634
14,745
2012
£000
9,049
1,275
155
484
10,963
Wages and salaries (including bonuses and healthcare costs)
Social security costs
Share based payments
Pension costs
The average monthly number of persons employed (including Executive and Non-Executive Directors) by Sagentia was as follows:
Year ended 31 December
Technology consultants
Marketing, support, administration and other technically-qualified staff
Group
2013
2012
156
34
190
124
32
156
5 Operating expenses
Expenses by nature
Year ended 31 December
Employee remuneration and benefit expense (excluding share based payment charge)
Operating third party expenses
Occupancy costs
Equipment and consumables
Selling and marketing expenses
Depreciation of property, plant and equipment
Patent fees
Recruitment and training
Foreign currency losses
Other
Note
7
14
Group
2013
£000
14,462
3,855
1,952
859
1,499
332
49
372
(23)
1,495
24,852
Included above
Group
Research and development *
Operating lease rentals
- Plant and machinery
Auditors’ remuneration
Services to the Company and its subsidiaries:
Fees payable to the Company’s auditors for the audit of the financial statements
Audit of the financial statements of the Company’s subsidiaries pursuant to legislation
Other non-audit fees
*R&D costs are represented by staff and material costs incurred in relation to R&D projects
2013
£000
7,469
18
10
43
49
2012
£000
10,308
2,891
1,539
797
1,309
236
59
322
46
876
18,383
2012
£000
6,035
17
10
27
12
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41
8 Directors’ remuneration, interests and transactions
Directors’ emoluments and benefits include:
Year ended 31 December 2013
Salary/ fee
Bonus
Name of Director
Courtley
Elton
Glover
Lacey-Solymar
Ratcliffe
Aggregate emoluments
£000
£000
30
161
30
30
275
526
-
-
-
-
-
-
Year ended 31 December 2012
Salary/fee
Bonus
Name of Director
Courtley
Elton
Glover
Hudson
Lacey-Solymar
Ratcliffe
Aggregate emoluments
£000
£000
30
155
30
156
7
218
596
-
62
-
-
-
-
62
Pension
contribution
£000
Taxable
benefits
£000
Compensation for
loss of office
£000
-
12
-
-
-
12
-
8
-
-
-
8
-
123
-
-
-
123
Pension
contribution
£000
Taxable
benefits
£000
Compensation for
loss of office
£000
-
12
-
12
-
-
24
-
8
-
9
-
-
17
-
-
-
500
-
-
500
Total
£000
30
304
30
30
275
669
Total
£000
30
237
30
677
7
218
1,199
Directors’ emoluments and benefits are stated for the Directors of Sagentia Group plc only. In addition to above, a share based
payment charge of £28,000 was recognised in the income statement relating to share options held by directors (2012: £49,000).
The amounts shown were recognised as an expense during the year related to the Directors of the Company. Bonuses, pension and
medical benefits are not paid to Non-Executive Directors.
Total social security costs related to Directors during the year was £81,000 (2012: £119,000).
Neil Elton resigned effective 14 February 2014. A payment of £123,000 was made reflecting the settlement of contractual
obligations.
The above figures for emoluments do not include any gains made on the exercise of share options received under long term
incentive schemes (2012: £Nil).
Directors’ interests in the shares of Sagentia at 31 December 2013 and 31 December 2012, and any changes subsequent to
31 December 2013, are as follows:
Sagentia Group plc
Ordinary shares of £0.01
Year ended 31 December
Elton
Ratcliffe
Courtley
Options
Shares
2013
2012
2013
2012
2013
2012
Average exercise price (pence)
Number
Number
51.0
40.0
-
55.8
40.0
-
100,000
2,500,000
-
600,000
2,500,000
-
171,914
12,512,906
375,000
101,914
12,512,906
375,000
2,600,000
3,100,000
13,059,820
12,989,820
See Note 20 for further details on option plans. Neil Elton exercised 400,000 share options during 2013. No other Directors
exercised options during the year. 25,000 options were granted to Neil Elton during 2013 but those and a further 100,000 options
have subsequently lapsed and are not included in the above table.
9 Income tax
The tax (charge) / credit comprises:
Year ended 31 December
Foreign taxation
Current taxation
Deferred taxation (Note 10)
2013
£000
-
(175)
(131)
(306)
2012
£000
1
(178)
303
126
The tax on Sagentia’s profit before tax differs from the theoretical amount that would arise using the weighted average statutory
tax rate applicable to profits of the consolidated companies as follows:
Profit before tax
Tax calculated at domestic tax rates applicable to profits / (losses) in the respective countries
Expenses not deductible for tax purposes
Fixed asset differences
Income not subject to tax
Accelerated capital allowances
Adjustment in respect of prior periods
Other temporary differences
Movement in deferred tax due to change in tax rate
Utilisation of tax losses
Tax (charge) / credit
The weighted average statutory applicable tax rate was 23.3% (2012: 24.5%).
The Group has available tax losses of approximately £19.4 million (2012: £23.0 million).
10 Deferred income tax
Deferred tax assets:
Deferred tax asset to be recovered after more than 12 months
Deferred tax asset to be recovered within 12 months
Deferred tax liabilities:
Deferred tax liabilities to be settled after more than 12 months
2013
£000
4,939
(1,149)
(125)
(43)
-
88
48
-
(144)
1,019
(306)
2013
£000
1,767
867
2,634
(2,172)
(2,172)
2012
£000
2,998
(734)
(96)
(42)
7
6
7
5
(71)
1,044
126
2012
£000
2,831
492
3,323
(2,220)
(2,220)
Total
462
1,103
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 42
43
10 Deferred income tax (continued)
11 Earnings per share
The gross movement on the deferred income tax account is as follows:
The calculation of earnings per share is based on the following result and number of shares:
2013
Weighted
average
number of
shares
’000
Profit
after tax
£000
4,633
37,424,309
-
3,910,418
4,633
392
41,334,727
-
Basic earnings per ordinary share
Effect of dilutive potential ordinary shares:
share options
Diluted earnings per ordinary share
Effect of adjustments*
Adjusted diluted earnings per ordinary share*
5,025
41,334,727
* Adjustments made to profit after tax are as set out within the consolidated income statement.
2012
Weighted
average
number of
shares
’000
Profit
after tax
£000
3,124
39,567,939
Pence per
share
7.9p
-
2,124,631
(0.4)p
3,124
655
41,692,570
-
3,779
41,692,570
7.5p
1.6p
9.1p
Pence
per share
12.4p
(1.2)p
11.2p
1.0p
12.2p
Adjusted basic earnings per share for continuing operations in 2013 were 13.4 pence (2012: 9.6 pence).
Only the share options granted, as disclosed in Note 20, are dilutive. The number of shares in issue (excluding treasury shares) at
31 December 2013 is 38,538,230 (2012: 36,665,591).
12 Dividends
The proposed final dividend for 2012 of 1.0p per share was approved by the Board on 15 May 2013. An amount of £0.4 million was
recognised as a distribution to equity holders in the year ended 31 December 2013.
The Board has proposed a final dividend for 2013 of 1.1p per share. The dividend is subject to approval by shareholders at the
annual general meeting and the expected cost of £0.4 million has not been included as a liability as at 31 December 2013.
Beginning of the year
Acquisition of subsidiaries in the year
Income statement credit (Note 9)
End of year
2013
£000
1,103
(510)
(131)
462
2012
£000
800
-
303
1,103
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, is as follows:
At 1 January 2012
Charged to the income statement
At 31 December 2012
Acquisition of subsidiaries in the year
Charged to the income statement
At 31 December 2013
Deferred tax liability
£000
Deferred tax asset
£000
(2,437)
217
(2,220)
(510)
558
(2,172)
3,237
86
3,323
-
(689)
2,634
Total
£000
800
303
1,103
(510)
(131)
462
Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit
through the future taxable profits is probable. Deferred tax liabilities are recognised against accelerated capital allowances.
Deferred taxation amounts provided and not provided in the financial statements are as follows:
Group
Provided
Not provided
Deferred taxation is attributable to:
Accelerated capital allowances
Tax losses available
Acquisition related intangible assets
Other temporary differences
Deferred tax asset
Tax losses relating to deferred tax asset not recognised
2013
£000
(2,007)
2,634
(432)
267
462
-
2012
£000
(2,220)
3,015
-
308
1,103
-
2013
£000
-
1,299
-
-
1,299
6,857
2012
£000
-
1,729
-
-
1,729
7,521
Company
Provided
Not provided
Deferred taxation is attributable to:
Tax losses available
Other temporary differences
Deferred tax asset
Tax losses relating to deferred tax asset not recognised
2013
£000
2012
£000
-
-
-
-
-
-
-
-
2013
£000
6
-
6
29
2012
£000
6
-
6
29
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 44
13 Intangible assets
Group
Cost
At 1 January 2012 and 31 December 2012
Acquisitions through business combinations
At 31 December 2013
Accumulated amortisation
At 1 January 2012 and 31 December 2012
Amortisation charged in year
At 31 December 2013
Carrying amount
At 31 December 2012
At 31 December 2013
Customer contracts
and relationships
£000
-
2,167
2,167
-
(109)
(109)
-
2,058
Goodwill
£000
-
3,577
3,577
-
-
-
-
3,577
Total
£000
-
5,744
5,744
-
(109)
(109)
-
5,635
Goodwill and acquisition related intangible assets recognised have arisen from acquisitions during the year. Refer to Note 22 for
further details.
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (‘CGUs’) that are expected to
benefit from that business combination. The carrying amount of goodwill has been allocated as follows:
Group
OTM Consulting Limited
Quadro Design Limited
Post-tax
discount rate
14.5%
14.5%
2013
£000
3,458
119
3,577
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The
recoverable amounts of the CGUs are determined from value in use. The key assumptions for the value in use calculations are those
regarding the discount rates and growth rates.
The Group monitors its post-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering
the discount rates applying to CGUs, the Directors have considered the relative sizes, risks and the inter-dependencies of its CGUs.
The impairment reviews use a discount rate adjusted for post-tax cash flows.
The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates cash
flows for the following two years based on forecast growth rates of the CGUs. The growth rates are based on internal growth
forecasts of between 5% and 10%. The terminal rate used for the value in use calculation is 2.25%.
Sensitivity analysis
No reasonably possible change in a key assumption would produce a significant movement in the carrying value of goodwill
allocated to a CGU and therefore no sensitivity analysis is presented.
14 Property, plant and equipment
Group
Cost
At 1 January 2012
Exchange differences on cost
Additions
Disposals
At 1 January 2013
Exchange differences on cost
Additions
Additions on acquisition
Disposals
At 31 December 2013
Accumulated depreciation
At 1 January 2012
Depreciation charge
Exchange differences on depreciation
Disposals
At 1 January 2013
Depreciation charge
Exchange differences on depreciation
Disposals
At 31 December 2013
Carrying amount
At 31 December 2012
At 31 December 2013
Freehold land
and buildings
£000
Furniture
and fittings
£000
16,685
(4)
-
-
16,681
-
-
-
-
16,681
2,892
69
(4)
-
2,957
67
-
-
3,024
13,724
13,657
1,644
-
267
(1,026)
885
-
280
18
(11)
1,172
1,442
95
-
(1,026)
511
132
-
(11)
632
374
540
Equipment
£000
1,827
(1)
150
(1,293)
683
(1)
139
70
(8)
883
1,702
72
(2)
(1,293)
479
133
(1)
(13)
598
204
285
45
Total
£000
20,156
(5)
417
(2,319)
18,249
(1)
419
88
(19)
18,736
6,036
236
(6)
(2,319)
3,947
332
(1)
(24)
4,254
14,302
14,482
The property is held at cost less accumulated depreciation. Included within land and buildings for Sagentia is freehold land, to the
value of £1,360,000 (2012: £1,360,000) which has not been depreciated. Cumulative interest capitalised up to 31 December 2003
was £340,000. No further interest has been capitalised since. The property was last valued during August 2013 by Savills for Lloyds
TSB. Under the assumptions used, including tenant covenant strength and market rents, the indicative valuation range for the
building was between £12.9 million based on occupational tenancies where the head lease is merged into the Freehold Interest,
and £18.0 million under a sale and leaseback scenario.
The property generated third party rental and services income of £1,171,000 (2012: £1,363,000). Given the continuing rental
values and occupancy rates the Directors do not believe that the carrying value of the property is significantly different to its fair
value determined during the year. The interest in freehold land and buildings has been charged as security to the bank loan
(see Note 21).
Sagentia Group plc had no fixed assets at the start or end of the year.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 46
15 Investments
16 Trade and other receivables
Group investments
Sagentia held investments in the following subsidiaries at 31 December 2013. The Directors do not consider that any of its
investments are associates and to avoid a statement of excessive length, details of investments that are not significant have
been omitted.
Subsidiaries of Sagentia Group plc
Consulting operations
Sagentia Limited*
Sagentia Technology Advisory Limited
(formerly Sagentia Holdings Limited)*
OTM Consulting Limited*
Quadro Design Limited (formerly QDA Limited)
Manage5Nines Limited
Sagentia Inc.
OTM Consulting Inc.
Sagentia GmbH†
Country of
incorporation
Principal activity
Shares held
%
England
Consultancy
England
Holding company
England
England
England
USA
USA
Germany
Consultancy
Consultancy
IT Consultancy
Consultancy
Consultancy
Consultancy
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Current assets
Trade receivables
Provision for impairment
Trade receivables – net
Amounts recoverable on contracts
Other receivables
Amounts owed by group undertakings
VAT
Prepayments
47
2012
£000
2,509
(121)
2,388
291
10
-
-
338
3,027
Company
Group
2013
£000
-
-
-
-
-
9,918
9
12
9,939
2012
£000
-
-
-
-
-
5,736
16
18
5,770
2013
£000
3,625
(81)
3,544
1,211
9
-
-
508
5,272
* Direct subsidiaries of Sagentia Group plc as at 31 December 2013.
All subsidiaries for which accounts are provided have year ends of 31 December.
† In process of being dissolved – liquidation anticipated to be completed in early 2014.
Company investments
Cost
At 1 January 2012 and 31 December 2012
Acquisitions through business combinations (see Note 22 (a))
At 31 December 2013
100
100
100
100
100
100
100
100
Total
£000
10,559
6,259
16,818
All amounts disclosed above are receivable within 90 days.
All of Sagentia’s trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were
considered to be impaired and a provision of £81,000 has been provided at 31 December 2013 (2012: £121,000). In addition,
some of the unimpaired trade receivables are past due as at the reporting date.
Provision brought forward
Debts written off
Provision released
Provision made
Provision carried forward
The age of trade receivables overdue but not impaired is as follows:
Not more than 3 months
More than 3 months but not more than 6 months
More than 6 months but not more than 1 year
More than 1 year
All impaired receivables are overdue by more than 60 days.
Group
2013
£000
121
-
(58)
18
81
Group
2013
£000
1,293
-
-
-
1,293
2012
£000
57
-
(33)
97
121
2012
£000
556
-
-
-
556
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 48
49
17 Cash and cash equivalents
20 Called-up share capital
Short term bank deposits
Cash at bank and in hand
18 Current liabilities
Trade and other payables – current
Payments received on account
Trade payables
Other taxation and social security
VAT
Deferred income
Accruals
Bank borrowings
Other borrowings
Current tax liabilities
19 Other non-current liabilities
Bank borrowings
Other borrowings
Other payables
Interest rate swap
Deferred income tax liabilities
Company
Group
2013
£000
4,873
408
5,281
2012
£000
10,140
83
10,223
2013
£000
9,935
12,493
22,428
2012
£000
15,186
3,993
19,179
Company
Group
Note
2013
£000
2012
£000
-
24
24
-
-
173
221
-
-
3
224
21
21
-
1
52
-
-
127
180
-
-
11
191
Note
21
21
2013
£000
2,025
342
351
12
896
3,479
7,105
1,000
20
155
8,280
Group
2013
£000
8,750
28
8,778
112
41
2,172
11,103
2012
£000
1,811
63
518
132
940
2,632
6,096
800
21
32
6,949
2012
£000
5,400
11
5,411
-
-
2,220
7,631
Allotted, called-up and fully paid
Ordinary shares of £0.01 each
Allotted, called-up and fully paid
Ordinary shares of £0.01 each
2013
£000
2012
£000
420
420
Number
Number
42,042,035
42,042,035
The allotted, called-up and fully paid share capital of the Company as at 31 December 2013 was 42,042,035 shares
(2012: 42,042,035). At the beginning of 2013, 5,376,444 of these shares were held by the Company as treasury shares
following the buyback of shares during 2012.
During 2013 the Company issued 928,500 treasury shares in the settlement of the exercise of share options and 944,139 treasury
shares as part consideration of the acquisition of OTM Consulting Limited. As a result, as at 31 December 2013, the total number of
ordinary shares in issue (excluding treasury shares) was 38,538,230 (2012: 36,665,591) and the number of treasury shares held was
3,503,805 (2012: 5,376,444) equivalent to 9.1% of the Company’s issued share capital (excluding treasury shares). It is the intention
of the Company to hold the treasury shares for the purpose of settling employee share schemes and in consideration for any future
business acquisitions. No dividend or other distribution may be made to the Company in respect of the treasury shares.
Reconciliation of outstanding options
2013
2012
At beginning of year
Granted during year
Exercised during year
Lapsed during the year
At end of year
Weighted
average exercise
price (pence)
56.2
1.0
39.7
60.4
48.9
Weighted
average exercise
price (pence)
44.0
86.0
22.4
38.4
56.2
Number
6,476,770
1,500,000
(210,051)
(1,533,334)
6,233,385
Number
6,233,385
1,062,500
(928,500)
(160,000)
6,207,385
The options outstanding at 31 December 2013 had a weighted average contractual life of 7.6 years (2012: 8.1 years).
Included within the total outstanding options at 31 December 2013 are 3,139,885 options which are exercisable (31 December 2012:
547,555). The weighted average exercise price of exercisable options at the end of the year was £0.40 pence (2012: £0.29 pence).
Options exercised during the year had a weighted average share price at the date of exercise of £1.37 pence (2012: £0.85 pence).
Exercise of an option is subject to continued employment, and normally lapses within three months of leaving employment.
All options granted during 2013 were valued using a binomial pricing model. Market performance conditions were included in
the fair value calculations; specifically the share price being 129.0 pence per ordinary share for 20 consecutive trading days, are
required to be met before these options become exercisable. Vesting period has been assumed to be 3 years.
All options granted during 2012 were valued using a binomial pricing model. Market performance conditions were included in the
fair value calculations; specifically the share price being 129.0 pence per ordinary share for 20 consecutive trading days, is required
to be met before these options become exercisable. These performance conditions were met during 2013. Vesting period has been
assumed to be 3 years.
The total charge for the year relating to employee share based payment plans was £283,000 (2012: £155,000), all of which related
to equity-settled share based payment transactions. The fair value per option granted and the assumptions used in the calculation
are included in the table below.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued
50
51
20 Called-up share capital (continued)
21 Borrowings (continued)
At 31 December 2013, options granted to subscribe for ordinary shares of the company are as follows:
In accordance with an agreed repayment schedule with the bank, bank borrowings are repayable to Lloyds TSB Bank plc as follows:
Within one year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Company
Group
2013
£000
2012
£000
-
-
-
-
-
-
-
-
-
-
2013
£000
1,000
1,000
7,750
-
9,750
2012
£000
800
800
4,600
-
6,200
In order to address interest rate risk an interest rate swap agreement (‘SWAP’) was taken out in September 2013, the effect of
which is to fully hedge the interest payments on the bank facility borrowings. The SWAP is designated as the variable rate interest
payable on the repayment loan facility of £10.0 million provided by Lloyds TSB Bank plc. The SWAP is contracted over the same
period of the loan at a fixed rate of 1.9% pa, effectively fixing the Group’s interest payments on the repayment loan facility at 3.9%
pa, plus regulatory costs. The fair value of the SWAP at 31 December 2013 was a liability of £41,000. The Group has applied hedge
accounting and this charge has been reflected in the Statement of Comprehensive Income. The Group cancelled an interest rate
swap instrument hedged against the previous loan at a one-off cost of £166,000. This charge has been recognised in profit and loss
in 2013.
Other borrowings relate to finance leases of £37,000 and a Carbon Trust loan which is interest free of £11,000. £20,000 is repayable
within one year and £28,000 between 1 and 3 years.
Date of grant
Option exercise period Number of shares under option
From
(a)
To
Approved
scheme
Unapproved
scheme
Incentive
scheme
Exercise
price
(pence)
Fair value
of options
(pence)
Life
(years)
Volatility
Dec 2007
Nov 2008
Dec 2009
Jun 2010
Jul 2010
Oct 2011
Nov 2012
Sep 2013
Oct 2013
Dec 2009
Nov 2011
Dec 2012
Jun 2013
Jul 2013
Oct 2014
Nov 2015
Sep 2016
Oct 2016
Dec 2017
Nov 2018
Dec 2019
Jun 2020
Jul 2020
Oct 2021
Nov 2022
Sep 2023
Oct 2023
-
20,000
100,000
-
151,500
295,374
539,273
-
-
109,978
-
-
-
50,000
259,626
950,727
972,500
50,000
-
-
-
2,500,000
208,407
-
-
-
-
1,106,147
2,392,831
2,708,407
(a) Subject to earlier exercise in certain limited circumstances
For all options granted prior to 2013 the exercise price is also the share price at date of grant
45.0
17.5
15.5
40.0
51.0
80.0
86.0
1.0
1.0
28.8
9.9
8.8
8.0
14.0
32.9
18.6
80.8
86.5
10
10
10
10
10
10
10
10
10
58%
42%
42%
35%
35%
65%
40%
25%
25%
21 Borrowings
Group
Non-current
Bank borrowings
Other borrowings
Current
Bank borrowings
Other borrowings
Total borrowings
Note
19
19
18
18
2013
£000
8,750
28
8,778
1,000
20
1,020
9,798
2012
£000
5,400
11
5,411
800
21
821
6,232
Sagentia Group plc had no bank borrowings at the start or end of the year.
In September 2013, the Group arranged a new five year loan of £10.0 million, on which interest is payable based on LIBOR plus 2.0%
margin. The loan is secured on the freehold property and associated lease structure and, subject to a minimum cash balance of
£2.0 million, it is not subject to covenants related to the operating performance of the Consultancy business. This loan replaced the
previous facility which was due to expire in October 2015 and on which there was an outstanding balance of £5.8 million. The new
loan was used to pay down the outstanding balance on the previous loan.
At 31 December 2013, £9,750,000 (2012: £6,200,000) is outstanding and is repayable by Sagentia Ltd to Lloyds TSB Bank plc.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 52
53
22 Acquisition of subsidiary
22 Acquisition of subsidiary (continued)
(a) OTM Consulting Limited
On 8 July 2013, the Group acquired 100% of the share capital of OTM Consulting Limited and its wholly owned subsidiary OTM
Consulting Inc. (together ‘OTM’), an international technology management consultancy specialising in the oil, gas and alternative
energy sectors. The acquisition is expected to enable Sagentia to accelerate its development in this identified growth and
investment area.
The consideration paid comprised cash of £5.3 million and consideration in the form of 944,139 shares in Sagentia Group plc,
issued at acquisition but over which there is a lock-in period of 36 months after the acquisition date. The fair value of the share
consideration is £1.0 million which has been calculated by discounting the share price on the date of issue in line with the
restrictions on the trade of these shares. At completion OTM held £1.5 million of cash on its balance sheet. Acquisition expenses of
£32,000 were expensed in the year.
Net assets acquired:
Acquisition related intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liability
Borrowings
Deferred tax liability
Goodwill
Total consideration
Satisfied by:
Cash consideration
Shares in Sagentia Group plc
Net cash outflow arising on acquisition:
Cash consideration
Book value
£000
Fair value
£000
-
85
912
1,522
(1,097)
(234)
(34)
(14)
1,140
2,157
85
912
1,522
(1,097)
(234)
(34)
(510)
2,801
3,458
6,259
5,300
959
6,259
3,778
The goodwill arising is attributable to the acquired workforce, anticipated future profit from expansion opportunities and
synergies of the businesses. Fair value adjustments have been recognised for acquisition related intangible assets and related
deferred tax and in alignment of accounting policies.
Acquisition related intangible assets of £2.2 million relate solely to the valuation of customer relationships. OTM has worked with a
number of blue-chip companies, including most oil majors and many national oil companies, for a number of years. Given the long
standing relationships and nature of the customer base the intangible asset is being amortised over eleven years.
A deferred tax liability of £0.5 million in respect of the acquisition related intangible assets was established on acquisition (refer to
note 10). None of the goodwill is expected to be deductible for income tax purposes.
OTM contributed £2.1 million revenue for the period between the date of acquisition and the balance sheet date and
£0.2 million to the Group’s profit before tax. If the acquisition of OTM had been completed on the first day of the financial year,
Group revenues would have been £1.5 million higher and group profit attributable to equity holders of the parent would have
been £0.1 million lower.
(b) Quadro Design Limited
On 14 February 2013, the Group acquired 100% of the share capital of Quadro Design Limited, a small industrial design company,
in order to enhance the offerings of the Group.
The consideration paid comprised a cash consideration of £14,000 and a maximum contingent consideration of 180,000 shares in
Sagentia Group plc, payable in annual instalments based on the performance of the company over a 3 year earn-out period.
Net assets acquired:
Acquisition related intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liability
Borrowings
Goodwill
Total consideration
Satisfied by:
Initial cash consideration
Contingent consideration
Net cash outflow/(inflow) arising on acquisition:
Cash consideration
Book value
£000
Fair value
£000
-
2
10
22
(8)
(36)
(1)
(11)
10
2
10
22
(8)
(36)
(1)
(1)
119
118
14
104
118
(8)
The goodwill arising is attributable to the acquired workforce, anticipated future profit from expansion opportunities and
synergies of the businesses. Fair value adjustments have been recognised for acquisition related intangible assets which relate to
the valuation of customer relationships and are being amortised over five years.
None of the goodwill is expected to be deductible for income tax purposes.
Quadro contributed £303,000 revenue for the period between the date of acquisition and the balance sheet date and £1,000 to the
Group’s profit before tax. If the acquisition of Quadro had been completed on the first day of the financial year, Group revenues
and profit attributable to equity holders of the parent would not have differed materially.
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 54
55
23 Commitments
25 Related party transactions
(a) Lease commitments
The minimum annual rentals under non-cancellable operating leases are as follows:
The Group provides support and consultancy services to its subsidiaries and made loans, all of which eliminate on consolidation,
and are therefore not disclosed.
Plant and equipment lease commitments
Operating lease payments:
- Within one year
- Between one and five years
Property lease rentals
Operating lease payments:
- Within one year
- Between one and five years
Group
2013
£000
2012
£000
3
17
20
282
287
569
589
3
13
16
92
110
202
218
The Company held intercompany balances and charged management fees as follows:
Company
Sagentia Limited
Sagentia Inc.
OTM Consulting Limited
Quadro Design Limited
Manage5Nines Limited
2013
Loans
£000
(9,918)
-
-
-
-
(9,918)
2013
Sale of goods
and services
£000
329
54
27
4
13
427
2012
Loans
£000
(5,736)
-
-
-
-
(5,736)
The remuneration of the key management personnel of the Group, recognised in the income statement, is set out below in
aggregate. Key management personnel include all members of the plc Board and the Operating Board of the Group.
(b) Other financial commitments
At 31 December 2013 the Group and the Company had other financial commitments of £Nil (2012: £Nil).
At 31 December 2013, the Group had a 5 year loan facility of £10.0 million secured on Harston Mill, Harston, near Cambridge, UK,
of which £10.0 million (2012: £8.0 million) had been drawn down and the balance at 31 December 2013 was £9.75 million. This
facility is repayable in September 2018 as detailed in Note 21. The Company has no loan facility at 31 December 2013 (2012: £Nil).
24 Contingent liabilities
The Group has provided a letter of credit issued by its bank on its behalf, in the ordinary course of business. The Directors are not
aware of any circumstances that have given rise to a liability under the letter of credit and consider the possibility of any arising to
be remote and therefore a fair value of £Nil (2012: £Nil) has been applied.
Aggregate remuneration
Year ended 31 December
Short-term employee benefits
Pension costs
Termination benefits
Share based payment transactions
2013
£000
1,617
54
123
89
1,883
2012
Sale of goods
and services
£000
838
29
-
-
39
906
2012
£000
1,086
34
500
58
1,678
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continuedNotes to the Financial Statements continued 56
57
26 Critical accounting estimates and judgements
27 Post balance sheet event
There are no post balance sheet events to disclose.
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be
reasonable under the circumstances.
Sagentia makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
(a) Project accounting
Sagentia undertakes a number of consultancy projects where
the final price to complete the project may be uncertain. The
state of completeness of each project, and hence, revenue
recognised, requires the use of estimates. The value of work
done is calculated based on proportion of time spent on
the project or value of stage gates achieved as set out in the
project. Management apply their judgement in assessing time
required to complete the projects and the ability to recover the
full project costs. Where significant uncertainty exists, income
is deferred until costs are recovered or the project is completed.
(b) Accounting for freehold property at Harston Mill
Sagentia owns and maintains the freehold property at Harston
Mill for use in the supply of its Core consultancy services and
for administrative purposes.
Whilst there is remaining space on site not required to fulfil
these activities Sagentia lets out space to third party tenants.
The revenues and costs attributable to this activity are
disclosed as ‘Other’ activities within the business segment
disclosures. It is not accounted for as an investment property,
the reasons being:
(i)
(ii)
the third party leases include the use of common areas
and because of this the areas that are leased to third
parties could not be sold separately;
the leases normally have notice periods of no more
than 6 months giving Sagentia the flexibility to start
using the areas if required, i.e. the leased areas are not
held for capital appreciation or a return of investment
through rental income.
Bank
Lloyds TSB
3rd Floor Black Horse House
Castle Park
Cambridge
CB3 0AR
Financial Public Relations
Abchurch Communications Limited
125 Old Broad Street
London
EC2N 1AR
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Advisers
Financial Advisers and Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Auditors
Grant Thornton UK LLP
101 Cambridge Science Park
Milton Road
Cambridge
Cambridgeshire
CB4 0FY
Lawyers
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London
EC4R 9HA
Website
www.sagentia.com
Registered Office
Harston Mill
Harston
Cambridge
CB22 7GG
Company Number
06536543
Annual Report and Financial Statements 20132013 Annual Report and Financial StatementsSagentia Group plcSagentia Group plcNotes to the Financial Statements continued
58
Notes
Annual Report and Financial Statements 2013Sagentia Group plc Sagentia Group plc | Harston Mill | Harston | Cambridge | CB22 7GG | UK
T. +44 1223 875200
www.sagentia.com
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