WANdisco Annual Report 2012

Plain-text annual report

In this report Business review Governance Financial statements 01 Highlights 02 Chairman and Chief Executive Officer’s report 04 Our technology in use 06 Financial review 08 Board of Directors 10 Directors’ report 14 Remuneration Committee report 15 Corporate governance Statement of Directors’ 18 responsibilities 19 Independent auditor’s report 20 Consolidated statement 21 of comprehensive income Consolidated statement of ﬁnancial position 22 Consolidated statement of changes in equity 23 Consolidated statement of cash ﬂows 24 Notes to the consolidated ﬁnancial statements 44 Four year record 45 Notice of ﬁrst Annual General Meeting IBC Secretary and advisers Find out more at wandisco.com WANdisco stands for Wide Area Network Distributed Computing Bookings ($’000s) 2011: $4,618 Our solutions enable globally distributed organisations to meet today’s data challenges of secure storage, scalability and availability. WANdisco’s products are differentiated by the company’s pattented, non-stoop data replication technollogy, seerving crucial hhigh availability requiremments, including Hadoop Big Data and Application Lifecycle Management (ALM). Highlights “ We are incredibly pleased with the progress achieved since our IPO in June. Our revenues have almost doubled during this period in a fast growing market. Our major investments in talented people and complementary IP during 2012 have enabled us to launch new products for the high growth big data market, which we believe ideally positions WANdisco for long-term sustained growth.” David Richards Chairman and Chief Executive Officer Revenue ($’000s) Deferred revenue ($’000s) Net cash ($’000s) 2011: $3,878 2011: $4,466 2011: $74 B u s i n e s s r e v e w i Successful Admission to AIM: Post period end1 IPO successfully completed, raising $26 million in signiﬁcantly oversubscribed Placing Major IPO milestones met: Awarded US patent for core Active-Active Data Replication technology Footprint extended into China, with office established and ﬁrst customers secured Expansion of enterprise sales team, with key hires from IBM, HP and other global technology ﬁrms Acquired AltoStor, accelerating product development for the fast-growing Hadoop big data market Opened new development centre in Belfast, Northern Ireland to accelerate product delivery and development New customers secured in numerous markets across multiple product sets: New customers include: Apple, Cap Gemini, Cisco, Delta Systems, E-Signal, FINRA, Fujitsu, General Dynamics, Georgia Tech, Honeywell, Huawei, Huntington Bank, McAfee, Nokia, Penn State University, Pioneer Investments, Pitney Bowes, and Ricoh Continued strong up-sell to existing customers: Additional subscription licenses purchased by Emerson, EMC, Fiserv, Hewlett Packard, John Deere, Prudential, Sherwin Williams, Syniverse, Wal-Mart and Wells Fargo Subscription renewal rate of 114%: Strong ﬁnancial momentum maintained: Q1 2013 cash bookings of $3.035 million, representing an increase of 96% year-on-year (Q1 2012: $1.545 million) and annualised subscription renewal rate of 134% Successfully entered big data market with new products, solutions and partnerships: Launched four big data products including WANdisco Distro, our ﬁrst big data product and the foundation for WANdisco’s range of enterprise big data solutions, as well as ‘Non-Stop NameNode’, our ﬂagship solution Filed three new additional patents related to distributed computing with applications in big data Established the Non-Stop Alliance Partner Program, with founding partners Hyve Solutions and SUSE Renewals received for customers including Cisco Systems, Disney, Juniper Networks, McGraw Hill and Vanguard 1 Post period end ﬁnancial information is unaudited. WANdisco plc Annual Report and Accounts 2012 01 Chairman and Chief Executive Officer’s report Deelivering oon our commitments Within product development we intend to invest in high quality engineers, notably to realise our ambitions in the big data market and continue our rapid growth in the software development market. Introduction Following the IPO of the Company on 1 June 2012, the Group has consistently delivered on its commitments as a pub- licly traded company on London’s Alternative Investment Market (“AIM”). Our initial aspirations, which were laid out as part of our admission to AIM, have been more than realised and we are excited about the prospects for sustained long- term growth, which we believe are now greater than initially anticipated 1 1 months ago. Delivering on our IPO commitments At the time of the IPO, the Group set out a number of short and medium-term ob- jectives, including two key targets related to sales team expansion and extending the product range. Not only have these all been delivered, they have also occurred more quickly than originally planned. Sales and marketing expansion Prio r to b eco min g a lis te d G ro up, WANdisco had operated with a small sales team, which did not have the resources to pursue actively the opportunities that were arising from the rapid success of our products within the Application Lifecycle Management (ALM) market. The sales team has now been greatly enhanced with some key hires from companies that operate in adjacent markets and through the opening of a sales and support office in Chengdu, China. We now boast a global sales team in ex- cess of twenty staff, the majority of whom are in North America aligned to our larg- est market but with an increasingly international footprint. The result of this expansion is only partly reﬂected in the re s u l t s h e re , b u t t h e 7 1 % g ro w t h in year-on-year bookings in 2012 serves to highlight the potential for further sales growth. Product development During the second half of the year, the Group broadened its product range through both investment in new software, such as the purchase of smartSVN, and through the recruitment of specialist tal- ent by way of our acquisition of AltoStor on 16 November. Having identiﬁed a major growth oppor- t u n i t y t h ro u g h t h e a p p l i c at i o n of WANdisco’s patented “active-active repli- cation” technology within the big data market, the Group set about investing in complementary IP and expertise to develop new products for this fast growing market. The acquisition of AltoStor and its found- ers, Dr Konstantin Shvachko and Jagane Sundar, provided WANdisco with unri- valled expertise in Apache Hadoop – the proven open source big data technology which is the backbone of many of the world’s largest and most important databases. This investment in Hadoop expertise, in addition to our own in-house develop- ment capacity and the opening of the new cost effective development office in Belfast, gave us the ability to deliver our new portfolio of products for the big data market substantially ahead of schedule. Employees In line with our growth ambitions we have considerably expanded our employee base across both our main operating lo- cations in Sheffield, United Kingdom, and in San Ramon, United States. Our newly opened offices in Belfast, Northern Ireland, and Chengdu, China, have further added to the Group’s wealth of expertise in software engineering and sales. We now have more than 100 employees across the globe and a strong culture which we believe will help us continue to attract employees of the highest calibre. 02 WANdisco plc Annual Report and Accounts 2012 B u s i n e s s r e v e w i Outlook The rapid sales growth of our existing products, combined with the increased potential of our big data products, which launched ahead of schedule, means the Board expects to deliver higher customer bookings than initially anticipated in 2013. Our continued investment in our sales and development teams should help to accelerate growth further in the medium term. The reception that our big data products have received within this fast growing sector provides confidence of rapid adoption for highly critical applica- tions. Consequently, the Board believes that sales in this area will be significant and will be delivered in the relatively short term. Our rapid growth within the ALM market continues as a result of the widespread adoption of our DConE replication tech- nology via our Subversion Multisite products. T h e B o a r d l o o k s t o t h e f u t u r e with confidence. David Richards Chairman and Chief Executive Officer In order to expand the possible routes to market for our new product suite, we have established the Non-Stop Alliance Partner Programme to provide partners with the technology, resources, expertise and support for global Apache Hadoop deploy- ments. Founding partners participating in the Non-Stop Alliance Partner Programme include Hyve Solutions and SUSE. First quarter 2013 trading update1 Underpinning our conﬁdence for 2013 is the strong momentum we have witnessed in the business during the ﬁrst quarter. While delivery of new products to support Apache Hadoop has been progressing ahead of expectations, the growth of our Subversion Multisite products has also been better than expected. In the first quarter of 2013, bookings have risen by 96% to $3.035 million when compared to the $1.545 million achieved in the same quarter last year. Notable new customers signed in the ﬁrst quar ter included G eneral Atomics, FutureWei (a division of Huawei), Société Générale and Maxim. In addition, the Group saw signiﬁcant growth in existing customer accounts including Home Depot, Nokia, John Deere and McAfee, all of whom expanded their use of WANdisco products within their organisations. The annualised renewal rate by booking value was 134%. Renewals included Sony, McGraw Hill, Raytheon, Vanguard, Borg Gais and Blue Shield. When one particu- larly large increased renewal is excluded the underlying rate of renewal is 117%. Focus and opportunity Since the year end, the growth potential of the Group has been highlighted further with the rapid launch of new products for use within the big data industry. Independent analyst firm Wikibon has stated that the overall big data market reached $11.4 billion in 2012, ahead of Wikibon’s previous forecast. The big data market is projected to reach $18.1 billion in 2013, an annual growth of 61%. This puts it on target to exceed $50 billion by 2017. That translates to a 33% compound annual growth rate over the ﬁve-year pe- riod. Apache Hadoop is described by independent analyst firm IDC as the “de facto big data platform” and is used by companies such as Yahoo!, Facebook, Twitter, LinkedIn and many others. This growth is fuelled by an increased awareness among enterprises that big data can yield huge beneﬁts in many diverse markets, notably ﬁnancial servic- es, pharmaceuticals and retail. These mainstream markets require enterprise features such as high availability and disaster recovery. By utilising our core, patented DConE replication technology, which forms the basis of our products for the ALM market, and combining it with the unparalleled exper tise that we now have within the Apache Hadoop community, we have been able to deliver a series of enter- prise-ready Apache Hadoop products for Big Data. The WANdisco Distro forms the founda- tion for the Group’s enterprise-level big data products, and when combined with our Non-Stop NameNode it guarantees availability for Apache Hadoop users. 1 Post period end ﬁnancial information is unaudited. WANdisco plc Annual Report and Accounts 2012 03 Our technology in use ESO reaches for the stars The European Southern Observatory (ESO) is Europe’s foremost inter-governmental astronomy organisation and the world’s most productive astronomical observatory. Atacama Large Millimeter/submillimeter Array (ALMA), one of ESO’s key projects, is a state-of-the-art telescope located 5,000 metres above sea level in the Chilean Andes and it is used to study light with wavelengths of around a millimeter, between infrared light and radio waves. This telescope helped in the discovery of a new planetary system. Performance and reliability requirements: Software developers working on the project are based at ALMA in the Chilean Andes, at three additional observation sites in Chile, and at locations in the United States, Japan and Germany. They would all access a single server in Munich, Germany, facing long wait times due to poor and unpredictable wide area network performance, which resulted in delayed research efforts. In addition, the network was unreliable and downtime was frequent, especially at the distant remote observatory site, leaving developers without server access for several hours at a time. “Slow and unreliable satellite-based network access from our remote observatory, located 5,000 metres above sea level in the Chilean Andes made access to the source code repository in Germany quite unpredictable for our developers based there,” said Erik Allaert, European Divisional Software Manager for ESO. “At the same time, we needed to improve network performance between all of our development sites in America, Japan and Europe.” Global 24/7 high-speed operations achieved WANdisco’s replication at ALMA After looking at leading version control solutions, ESO selected WANdisco. WANdisco turns distributed servers into mirrors of each other, so every server is in sync. Developers at every location enjoy LAN-speed performance for all operations and have access to the most up-to-date changes, regardless of where those changes originated. rkkkk WANdisco enables LAN-speed collaboration between ESO’s globally distributed developers from any location, allowing them to work as if they were all at one location. With WANdisco’s patented replication technology, all repositories are fully readable, writeable and continuously in sync and downtime and data loss are completely eliminated because the repositories are turned into mirrors of each other, providing continuous hot-backup and automatic failover across every site. 04 WANdisco plc Annual Report and Accounts 2012 Socorro Munich Chajnantor Responding to catastrophe The March 2011 tsunami in Japan was disastrous, claiming more than 15,000 lives. In addition, it had catastrophic results for ESO, causing a three-month outage for the organisation’s Tokyo location. However, with WANdisco’s patented replication solution in place, users there simply connected to ESO servers in Germany. When the Tokyo servers were brought back online, they were immediately and automatically re-synchronised with servers at other sites in less than two hours. To read more about our work and to see more examples of what we have done for other customers visit wandisco.com B B u u s s i i n n e e s s s s r r e e v v e e w w i i WANdisco Results for ESO All users at every site globally have LAN-speed access to most up-to-date source code. WANdisco eliminates single point of failure, performance bottleneck and WAN latency. Checkouts that once took hours from remote sites take minutes. ESO now has a daily continuous build process – no more waiting till the end of the week. Merge conﬂicts and other issues are resolved quickly, before project deadlines are impacted. ESO operates 24/7 – no more downtime, even for maintenance. WANdisco’s solution enabled us to achieve what we were after with dramatically improved efficiency and productivity globally, without any downtime. Erik Allaert Divisional Software Manager, ESO Tokyookyooo ESO site: ALMA antennas under the Milky Way. José Francisco Salgado, ESO Photo Ambassador WANdisco plc Annual Report and Accounts 2012 05 Financial review Suubbstantial growth across the boooardd The Group has delivered a strong ﬁnancial performance driven by substantial growth in subscriptions. › Bookings increase by 71% to $7.916 million (2011: $4.618 million) › Revenue increases by 56% to $6.031 million (2011: $3.878 million) › Deferred revenue increased to $6.368 million (2011: $4.466 million) › Net cash balances at year end of $14.5 million As our full year results highlight, the Group has experienced rapid growth in 2012. This growth is expected to continue as the products achieve wider adoption throughout both the software developer community and the big data industry. The admission of the company’s shares to the Alternative Investment Market in London on 1 June 2012 was a transfor- mational event, affording the Group an opportunity to raise signiﬁcant amounts of ﬁnancial resources which in turn gave the Group the capacity to expand its sales team and product base. New funds raised at the time of the IPO were $23.2 million through the issue of 8,333,334 new Ordinary Shares at a placing price of 180 pence per share. In consequence, the Group is now broadly owned as to 50% by the professional investing com- munity and 50% by current and former employees of the Company. Immediately following the IPO, the cash available for investment was $23.5 million. The table on the following page demon- strates how these funds were utilised over t h e s u b s e q u e n t s e v e n m o n t h s to 31 December 2012. Since the IPO there have been two signiﬁ- cant corporate transactions. The investment of $1.0 million in the smartSVN software products has proven to be advantageous in terms of broadening the Group’s prod- u c t o f f e r i n g fo r t h e A L M m a r k e t . Furthermore, the $4.9 million paid to the vendors of the AltoStor, Inc. business (of which $1.5 million was paid in cash im- mediately on completion) has been invaluable in terms of improving the Group’s knowledge base of the Apache Hadoop technology, as well as rapidly ac- celerating our ability to launch products designed to overcome some of the major issues in the big data marketplace. The AltoStor acquisition was partly funded through the issue of 525,911 new Ordinary Shares and $1.5 million by way of cash. The cash consideration has been treated as initial purchase consideration, as well as $0.8 million of the share consideration, of which $0.3 million was made available to the vendors immediately on comple- tion, and $0.5 million is deferred. The balance of the amount paid to the ven- dors ($2.6 million) is to be treated under IFRS 2 as a share-based payment in the post acquisition period, due to the conditionality that attaches to the release of the shares to the vendors. The subscription model for selling the Group’s products has once again proved its worth in that each renewal gives us the opportunity to extend our engagement with our customers. This model also pro- vides us with a high degree of conﬁdence in terms of forecasting future revenues. As a result of cash bookings increasing year- on-year by 71%, the balance on the deferred revenue account has also in- creased from $4.466 million to $6.368 million, a rise of 43%. The subscription model for selling the Group’s products has once again proved its worth 06 WANdisco plc Annual Report and Accounts 2012 Cash bookings +71% 2011: $4.6m // 2012: $7.9m Revenue 0m +56% 2011: $3.9m // 2012: $6.0m $’000 253 23,197 (1,000) (1,500) 3,609 (2,374) (3,572) (1,412) (2,656) 14,545 B u s i n e s s r e v e w i The substantial investment in the sales team and software engineers since the IPO has resulted in an accounting loss in terms of underlying EBITDA. While the Group was EBITDA positive on this basis in the year to 31 December 2011, when it had limited funds to invest in growth, the recent level of investment has resulted in an adjusted loss before interest, tax, d e p re ci a t i o n a n d a m o r t i s a t i o n o f $3.002 million. The adoption of the Group’s products by our target customers continues apace which is a testament to the quality of the software and individuals that develop and support it. As a result it is clear that wider adoption will transform the ﬁnancial posi- tion of the Group going forward and help to build upon the successful IPO. Nick Parker Chief Financial Officer Cash ﬂows since IPO on 1 June 2012 Pre IPO cash Cash raised from IPO (net of costs) Syntevo software purchase AltoStor Acquisition Cash receipts UK Payroll costs US Payroll costs Operating working capital IPO costs Cash at year end Revenue for the year under review was $6.031 million, representing a 56% increase over the prior year result of $3.878 million. During the year, as in previous years, the Group has invested substantially in new product development. This invest- m e nt h a s co n t r i b u te d s t ro n g l y to the growth in revenues and it is anticipat- ed that such investment will continue. In the year ended 31 December 2012, the total capitalised development expenditure was $2.912 million, resulting in an intangi- ble asset in the statement of financial position of $2.454 million. This asset is being amortised over two years. Clearly, as a result of, inter alia, the IPO and its associated costs, the Group has in- curred a number of exceptional costs during the year amounting to $2.656 mil- lion. These have been excluded from the calculation of the underlying results, as has the exceptional gain of $776,000 aris- i n g f ro m t h e t r a ns l at i o n a l fo re i g n exchange difference due to the sterling cash deposits that the Group held at the year end. In consequence, the net excep- tional costs charged in the year amounted to $1.880 million. “ The adoption of the Group’s products by our target customers continues apace which is a testament to the quality of the software and individuals that develop and support it.” WANdisco plc Annual Report and Accounts 2012 07 Board of Directors WANdisco is led by a seasoned team of software executives who have served on the boards and advisory boards of a number of Silicon Valley start-up ventures and large corporates. The team consists of individuals who have built companies from inception to successful exit and people who are regarded as worldwide authorities in the ﬁeld of distributed computing, network protocols and Java development. 1. David Richards Position President, CEO and Co-founder Committees Remuneration Experience David is CEO, President and co-founder of WANdisco and has quickly estab- lished WANdisco as one of the world’s most promising technology companies. Since co-founding the Company in Silicon Valley in 2005, David has led WANdisco on a course for rapid interna- tional expansion, opening offices in the UK, Japan and China. David spearhead- ed the acquisition of AltoStor, which a cce le r ate d th e d eve lo p m e nt of WANdisco’s first products for the big data market. The majority of WANdisco’s core technology is now produced out of the Company’s ﬂourishing software development base in David’s home- town of Sheffield, England, and in Belfast, Northern Ireland. David has become recognised as a champion of British technology and entrepreneurship. In 2012, he led WANdisco to a hugely successful listing on London Stock Exchange (WAND:LSE), r a isin g ove r $23 m i lli o n to d r i ve business growth. With over 15 years’ executive experi- ence in the software industry, David sits on a number of advisory and executive boards of Silicon Valley start-up ven- t u re s . A p a s s i o n ate a d vo c ate of entrepreneurship, he has established many successful start-up companies in enterprise software and is recognised as an industry leader in enterprise ap- plication integration and its standards. David is a frequent commentator on a range of business and technology is- sues, appearing regularly on Bloomberg and CNBC. Proﬁles of David have ap- peared in a range of leading publications including the Financial Times, the Daily Telegraph and the Daily Mail. David holds a BSc degree in computer s c i e n c e f r o m t h e U n i v e r s i t y o f Huddersﬁeld, England. 2. James Campigli Position Chief Operating Officer and Co-founder Committees Audit Experience James has over 25 years of software in- dustry experience at both early-stage and public companies. In his current role James is responsible for WANdisco’s op- erational management, including oversight of marketing, human resources, and legal affairs. In his previous role as a founder and chief technology officer (CTO) of Librados, an application integra- tion software provider, James was responsible for overall product strategy and product messaging. James was also a member of the management team that led the company’s acquisition by NetManage, Inc. Following its acquisition, James joined NetManage as CTO for the Librados products group. Prior to Librados, James was the vice president of product management for Insevo, a middleware company special- izing in enterprise application integration. James also held senior product manage- ment, product marketing and consulting management positions at BEA Systems and SAP AG. James holds a BA from the University of California, Berkeley. 08 WANdisco plc Annual Report and Accounts 2012 For biographies of our full management team visit our website wandisco.com B u s i n e s s r e v e w i G o v e r n a n c e 3. Nick Parker Position Chief Financial Officer and Company Secretary Committees N/A 4. Paul Walker Position Non-executive Director 5. Ian Duncan Position Non-executive Director Committees Remuneration and Audit Committees Remuneration and Audit Experience Nick has over 25 years of experience in finance positions and in particular in London Stock Exchange listed compa- nies. Nick is an experienced business professional and chartered accountant (Institute of Chartered Accountants in England and Wales) and today serves as WANdisco’s CFO, where he oversees the Group’s finance, accounting and investor relations functions. Prior to WANdisco, Nick was the Dyson Group PLC CFO for over eight years from 2000 to 2008. He was previously, from 2008 to 2011, the chief executive of Sheffield Wednesday Football Club, where he was involved in the sale of the English football team to private inves- tors, and was also the vice president of corporate development at Carclo PLC, where he oversaw numerous acquisi- tions and disposals in both the UK and overseas. Nick holds a BA in ac- countancy and economics from the University of Exeter, UK. Experience Paul served as chief executive officer of The Sage Group Plc from 1994 to 2010. Paul joined Sage Group Plc as company accountant in 1984 and served as its fi- nance director from 1987 until 1994. Paul has been a non-executive director of Experian plc since June 2010 and has been a non-executive director of Diageo Plc since June 2002. He has also served as non-executive chairman of Perform plc since 2011, is currently chair of the Newcastle Science City Partnership and is a director of the Entrepreneurs’ Forum. Paul previously served as a non-executive director of MyTravel Group Plc from December 2000 to December 2004. Experience Ian was group ﬁnance director of Royal Mail Holdings plc from 2006 to 2010. Prior to Royal Mail Holdings plc, Ian served for eight years as chief ﬁnancial officer and senior vice president of Westinghouse Electric Company LLC in Pennsylvania, US. Between 1993 and 1998 Ian was at British Nuclear Fuels plc latterly as corporate finance director. Prior to this Ian was an associate direc- tor at Lloyds Merchant Bank Limited and a manager at Dresdner Kleinwor t Wasserstein Limited. Ian qualified as a chartered accountant at Deloitte and Touche in 1985. Ian is currently a non-executive director and Chair of the a u d i t c o m m i t t e e a t B a b c o c k International Group plc, Fiberweb plc and the Mouchel Group. WANdisco plc Annual Report and Accounts 2012 09 Directors’ report The Directors present their report and the audited ﬁnancial statements for the year ended 31 December 2012. Principal activity The principal activity of the Group is the development and provision of global collaboration software. Substantial shareholders The Company is informed that, at 25 April 2013, individual registered shareholdings of more than 3% of the Company’s issued share capital were as follows: Business review and future developments A review of the Group’s operations and future developments is covered in the Chairman and Chief Executive Officer’s Report on pages 2 and 3. This report includes sections on strategy and markets and considers key risks and key performance indicators. Financial results Details of the Group’s ﬁnancial results are set out in the Consolidated Income Statement and other components on pages 20 to 43. Dr Yeturu Aahlad Cazenove Capital Legal & General Investment Management Ltd Blackrock Investment Management Mr Mohammad Naeem Akhtar Number of shares 3,425,091 1,627,473 1,595,676 697,080 692,454 % of issued Ordinary Share capital 15.99% 7.60% 7.45% 3.25% 3.23% Dividends The Directors do not recommend the payment of a dividend. Directors’ shareholdings Going concern After making enquiries, the Directors have conﬁdence the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Report and Accounts. This is described in more detail in Note 1. Annual General Meeting On page 45 is the notice of the Company’s ﬁrst Annual General Meeting to be held at 12.00 noon on 12 June 2013 at the offices of DLA Piper UK LLP in Sheffield. Directors The Directors who served on the Board and on Board Committees during the year are set out on pages 8 and 9. Under the Articles of Association of the Company, no person who was a Director as at the date of Admission shall be required to retire at the Company’s Annual General Meeting following Admission. In future years one-third of the Directors are required to retire at the Annual General Meeting and can offer themselves for re-election. The Directors beneﬁted from qualifying third party indemnity provisions in place during the ﬁnancial year and at the date of this report. Information on Directors’ remuneration and share option rights is given in the Remuneration Committee Report on page 14. The beneﬁcial interests of the Directors in the share capital of the Company at 31 December 2012 and at 25 April 2013 were as follows: Executive Directors David Richards James Campigli Non-Executive Directors Paul Walker Number of shares % of Ordinary issued share capital 3,383,153 1,844,143 15.79% 8.61% 111,111 0.52% None of the Directors had any interest in the share capital of any subsidiary company. Further details of options held by the Directors are set out in the Remuneration Committee Report on page 14. The middle market price of the Company’s Ordinary Shares on 31 December 2012 was 440 pence and the range during the period since admisson to AIM and the year end was 180 pence to 455 pence with an average price of 329 pence. Research and development The Group expended $2,912,000 during the year (2011: $1,207,000) on research and development of which $2,912,000 (2011: $1,207,000) was capitalised within intangible assets and $nil (2011: $nil) was charged to the income statement. In addition, an amortisation charge of $1,801,000 (2011: $980,000) has been recognised against previously capitalised costs. 10 WANdisco plc Annual report and accounts 2012 Derivatives and ﬁnancial instruments The Group’s policy and exposure to derivatives and ﬁnancial instruments is set out in Note 21. Employee involvement It is the Group’s policy to involve employees in its progress, development and performance. Applications for employment by disabled persons are fully considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. The Group is a committed equal opportunities employer and has engaged employees with broad backgrounds and skills. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who is fortunate enough not to suffer from a disability. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues. Political and charitable donations During the year ended 31 December 2012 the group made political donations of $nil (2011: $nil) and charitable donations of $nil (2011: $nil). Supplier payment policy and practice The Group does not operate a standard code in respect of payments to suppliers. The Group agrees terms of payment with suppliers at the start of business and then makes payments in accordance with contractual and other legal obligations. The ratio, expressed in days, between the amount invoiced to the Group by its suppliers during the year to 31 December 2012 and the amount owed to its trade creditors at 31 December 2012 was 45 days (2011: 43 days). Risks relating to the Group and its business Technological risks The Group’s business is dependent upon technology which could be superseded by superior technology, more competitively priced technology or a shift in working practices which could affect both the potential proﬁtability and saleability of the Group’s product offering. Staying abreast of technological changes may require substantial investment. The Group’s existing software products need to develop continually in order to meet customer requirements. The technology used in the Group’s products and used in Subversion is still evolving and is highly complex and may change rapidly. Research and development by other companies may render any of the Group’s products in development or currently available obsolete. Intellectual property protection The Group protects its intellectual property through a variety of methods, including proprietary information and invention agreements and non-disclosure agreements entered into by WANdisco and its employees through the Group’s terms and conditions of software licence agreements. The Group also has a patent in the US and a number of patents that it has applied for and a number of trade marks registered in the US. Any failure to protect the Group’s intellectual property may result in another party copying or otherwise obtaining and using its proprietary technology without authorisation. There may not be adequate protection for the intellectual property in every country in which the Group sells its products and policing unauthorised use of proprietary information is difficult and expensive. Due to the Group’s size and previously limited cash resources, it has historically taken only limited action to protect its key intellectual property and it may not be able to detect and prevent infringement of its intellectual property. Should a third party successfully demonstrate priority over any of these rights, it could inhibit the Group from selling products in certain territories. The steps, which the Group has taken and intends to take to protect its intellectual property, may be inadequate to prevent the misappropriation of its proprietary technology. Any misappropriation of the Group’s intellectual property could have a negative impact on the Group’s business and its operating results. Furthermore, the Group may need to take legal action to enforce its intellectual property, to protect trade secrets or to determine the validity or scope of the proprietary rights of others. Litigation relating to the Group’s intellectual property, whether instigated by the Group to protect its rights or arising out of alleged infringement of third party rights, may result in substantial costs and the diversion of resources and management attention and there can be no guarantees as to the outcome of any such litigation, or that it can be effectively used to enforce the Group’s rights. Dependence on key executives and personnel The Group’s future success is dependent on its senior management and key technical personnel. Whilst much of the Group’s proprietary know-how is documented, members of the technical team each contribute valuable skills and know-how to the business and, despite contractual conﬁdentiality agreements in favour of the Group, there can be no guarantee that those individuals will not join the Group’s competitors or establish themselves in competition with the Group in the future. Failure to retain the services of any of these people may adversely affect the Group’s business and growth prospects. Additionally, the future success of the Group is dependent on the ability to continue to attract, retain and motivate qualiﬁed personnel and failure to do so could materially affect the Group’s business. G o v e r n a n c e WANdisco plc Annual report and accounts 2012 11 Directors’ report continued Risks relating to the Group and its business continued Competition risk There can be no guarantee that the Group’s competitors (including those who license software which competes with Subversion or CVS) have not already developed and/or will not develop products and services which are competitive to those supplied by the Group or which reduce the appeal of Subversion and there can be no assurances that the availability of any such products and services will not adversely affect future demand for the Group’s own products and services. The Group’s competitors may have or develop greater ﬁnancial, marketing and technological resources than the Group, enabling them to develop products and services which are competitive to those of the Group and to promote them more successfully than the Group. Open source software WANdisco’s products are currently designed for use with Subversion and CVS, both of which are open source software products. As open source products are developed by a wider community, the Group does not solely control their development, and changes to the structure of the products may signiﬁcantly impair the effectiveness of the Group’s products. As the core open source software on which the Group’s products and services currently depend are licensed for free, the Group’s ability to sell its products and services may be curtailed by potential customers not understanding the incremental beneﬁts of the Group’s offering or seeking to rely purely on the open source software available. WANdisco’s products contain products licensed under free and open source software code (FOSS). As with any type of software licence, WANdisco must abide by the terms of the relevant licences. The FOSS products used by WANdisco are a mix of “permissive” and “copyleft” licences, with the vast majority being permissive. There is an inherent risk for any business that uses FOSS with a copyleft effect that it may be obliged to release the source code to its proprietary software. This is sometimes referred to as “contamination”. This risk cannot be entirely eliminated but WANdisco has implemented a FOSS policy which includes the following provisions to reduce signiﬁcantly and mitigate the risk of contamination: › WANdisco favours the use of permissive (non-copyleft) FOSS licences, which do not pose a contamination risk (speciﬁcally, the form of copyleft licence that poses the highest risk (the GPL) is not used by WANdisco); › if there is any question about how appropriate a FOSS licence is (for example it is unknown whether it is a permissive or copyleft licence), then it will seek to agree a suitable method for re-licensing with the licensor or it will seek speciﬁc legal advice; › when packaging any FOSS, the terms of licence will always be placed in a licences ﬁle or folder contained in the product; and › WANdisco will use “dynamic” rather than “static” linking to FOSS code wherever this is possible (and WANdisco conﬁrms that dynamic linking is currently exclusively used in practice), the use of which is generally accepted in the market to reduce the risk of contamination by the FOSS products WANdisco currently uses. If WANdisco does not comply with its FOSS policy then the risk of contamination by FOSS with a copyleft effect is increased. No instances of such non-compliance have been identiﬁed by WANdisco. Exchange rate risk Exchange rate ﬂuctuations could have a material adverse effect on the Group’s proﬁtability or the price competitiveness of its products and services. There can be no guarantee that the Group would be able to compensate or hedge against such adverse effects and therefore negative exchange rate effects could have a material adverse effect on the Group’s business and prospects, and its ﬁnancial performance. Product risks The Group’s products and the software on which they are based are complex and may contain undetected defects when ﬁrst introduced and problems may be discovered from time to time in existing, new or enhanced products. Undetected defects could damage the Group’s reputation, ultimately leading to an increase in the Group’s costs or reduction in its revenues. Security and privacy breaches The Group’s security and testing measures may not prevent security breaches that could harm the Group’s or its customers businesses. For example, a number of the Group’s users provide the Group with credit card and other conﬁdential information and authorise the Group to bill their credit card accounts directly for the Group’s products and services. Typically, the Group relies on encryption and authentication technology licensed from third parties to enhance the transmission and storage security of conﬁdential information. Advances in computer capabilities, new discoveries in the ﬁeld of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology used by the Group to protect customer and proprietary data. Any compromise of the Group’s security could harm its reputation or ﬁnancial condition and, therefore, the business. In addition, a party who is able to circumvent the Group’s security measures could, among other effects, misappropriate proprietary information, cause interruptions in the Group’s operations or expose customers to computer viruses or other disruptions. Actual or perceived vulnerabilities may lead to claims against the Group. While the Group’s customer agreements typically contain provisions that seek to limit the Group’s liability, there is no assurance that these provisions will be enforceable and effective under applicable law. 12 WANdisco plc Annual report and accounts 2012 Risks relating to the Group and its business continued Reliance on key systems General risks Economic conditions and current economic weakness Any economic downturn either globally or locally in any area in which the Group operates may have an adverse effect on the demand for the Group’s products. A more prolonged economic downturn may lead to an overall decline in the volume of the Group’s sales, restricting the Group’s ability to realise a proﬁt. The markets in which the Group offers its services are directly affected by many national and international factors that are beyond the Group’s control. Disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ Report conﬁrm that, so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he or she ought to have taken to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Auditor A resolution for the re-appointment of KPMG LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the Board Nick Parker Chief Financial Officer and Company Secretary 25 April 2013 G o v e r n a n c e The Group’s dependency upon technology exposes the Group to signiﬁcant risk in the event that such technology or systems experience any form of damage, interruption or failure. Any malfunctioning of the Group’s technology and systems, even for a short period of time, could result in a lack of conﬁdence in the Group’s services and a possible loss of existing customers to its competitors, with a consequential material adverse effect on the Group’s operations and results. The Group’s systems are vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial of service attacks and other events. The Group’s systems are also subject to break-ins, sabotage and international acts of vandalism by internal employees and contractors as well as third parties. Any interruption in the availability of the Group website, support site or telephone systems would create a business interruption and large volume of customer complaints. Transfer pricing There is a risk that amounts paid or received under intra-group arrangements in the past and/or the future could be deemed for tax purposes to be lower or higher, as the case may be, or be disregarded for the purposes of calculating tax, which may increase the Group’s taxable income or decrease the amount of relief available to the Group with a consequential negative effect on its ﬁnancial and operating results. Key customer dependency The Group currently generates a signiﬁcant proportion of its revenue from certain customers. In 2012, the Group’s top 20 customers accounted for 56.0% of total revenue. The loss of all or a substantial proportion of the business provided by one or more of the Group’s top customers could have a material adverse effect on the Group’s business. Regulation risk Regulation of the internet and e-commerce is rapidly evolving and there are an increasing number of directly applicable laws and regulations. It is possible that additional laws and regulations may be enacted with respect to the internet, covering issues such as user privacy, law enforcement, pricing, taxation, content liability, data encryption, copyright protection, and quality of products and services. The requirement to comply with and the adoption of such new or revised regulations, or new or changed interpretations or enforcement of existing regulations, may have a material adverse effect on the Group’s business and on the results of its operations. WANdisco plc Annual report and accounts 2012 13 Remuneration Committee report As an AIM company, WANdisco plc is required to comply with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Report) Regulations 2008. The content of this report is unaudited unless stated. Remuneration Committee The Remuneration Committee comprises the Non-executive Chairman (Paul Walker), the Independent Non-executive Director (Ian Duncan) and the Group Chairman and Chief Executive Officer (David Richards). The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to remuneration, terms of service, granting of share options and other equity incentives. The Remuneration Committee meets at least twice a year. Remuneration policy The objectives of the remuneration policy are to ensure that the overall remuneration of Executive Directors is aligned with the performance of the Group and preserves an appropriate balance of income and shareholder value. Non-executive Directors Remuneration of the Non-executive Directors is determined by the Executive Directors. Non-executive Directors are not entitled to pensions, annual bonuses or employee beneﬁts. They are entitled to participate in share option arrangements relating to the Company’s shares but neither of them does at this time. Each of the Non-executive Directors has a letter of appointment stating his annual fee and that his appointment is initially for a term of three years. Their appointment may be terminated with three months’ written notice at any time. Directors’ remuneration The normal remuneration arrangements for Executive Directors consist of Directors’ fees, basic salary and annual performance-related bonuses. In addition, they receive private health care and, in the case of Nick Parker, a pension contribution. Directors’ emoluments In the year ended 31 December 2012 the basis of the executive bonus scheme was as laid out in the Admission document, being based upon the level of growth in the customer bookings number in 2012 relative to that achieved in 2011. That bonus scheme also included Executive David Richards James Campigli Nick Parker Non-Executive Paul Walker Ian Duncan Total 14 WANdisco plc Annual report and accounts 2012 arrangements for the subsequent two years to 31 December 2014. Following the Admission of the shares to listing on AIM, it was considered appropriate to review these arrangements and assess the extent to which they were in line with best practice for the current and subsequent years. It was agreed by the Remuneration Committee and the Board as a whole that, while bonuses of up to 150% might reﬂect not only the operational performance of the Group during the period but also the achievement of signiﬁcant corporate objectives such as the successful IPO, in terms of operational parameters a maximum bonus of 100% of base salary seemed more appropriate. In consequence a new bonus scheme is to be introduced for the current year. The new bonus scheme will incorporate a target bonus of 75% of salary with a maximum bonus of 100% of salary. The level of the bonus will be dependent upon the customer bookings achieved during the year. Directors’ interests Details of the Directors’ shareholdings are included in the Directors’ report on page 10. Directors’ share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Details of options for Directors who served during the year are as follows: Executive David Richards James Campigli Nick Parker Non-executive Paul Walker Ian Duncan Number of options at 31 December 2012 — — 400,000 — — Exercise price — — $0.36 — — Paul Ashton Walker Chairman of the Remuneration Committee 25 April 2013 Salary/fees $’000 350 300 277 927 42 42 84 Bonus $’000 500 429 562 1,491 — — — 1,011 1,491 Beneﬁts $’000 49 28 40 117 — — — 117 31 December 31 December 2012 Total $’000 899 757 879 2,535 42 42 84 2011 Total $’000 229 211 53 493 — — — 2,619 493 Corporate governance 2012 FRC UK Corporate Governance Code Whilst the Company is listed on the AIM, it is not required to adopt the provisions of the Code on Corporate Governance (“the Code”). The Board, however, is committed to the maintenance of high standards of corporate governance and after due consideration it has adopted many aspects of the Code as described below. The Board of Directors and Committees of the Board of Directors The Board comprises three Executive and two Non-executive members as at 25 April 2013. This ensures compliance with the Code which states that a smaller company should have at least two independent directors. The Board met regularly throughout period from 1 June 2012, the date of Admission to AIM, and the year end, with ad hoc meetings also being held. The role of the Board is to provide leadership of the Group and to set strategic aims but within a framework of prudent and effective controls which enable risk to be managed. The Board has agreed the Schedule of Matters reserved for its decision which includes ensuring that the necessary ﬁnancial and human resources are in place to meet its obligations to its shareholders and others. It also approves acquisitions and disposals of businesses, major capital expenditure, annual ﬁnancial budgets and recommends interim and ﬁnal dividends. It receives recommendations from the Audit Committee in relation to the appointment of the auditor, its remuneration and the policy relating to non-audit services. The Board agrees the framework for Executive Directors’ remuneration with the Remuneration Committee and determines fees paid to Non-executive Directors. Board papers are circulated before Board meetings in sufficient time to be meaningful. The performance of the Board is evaluated on an ongoing basis informally with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether corporate governance issues are handled in a satisfactory manner; and whether there is a clear strategy and objectives. A new Director, on appointment, is briefed on the activities of the Group. Professional induction training is also given as appropriate. The Chairman briefs Non-executive Directors on issues arising at Board meetings if required and Non-executive Directors have access to the Chairman at any time. Ongoing training is provided as needed. Directors are updated on a frequent and regular basis on the Group’s business and on issues covering employment, social, ethical, environmental and health and safety matters by means of Board presentations. In the furtherance of his duties or in relation to acts carried out by the Board or the Company, each Director has been informed that he is entitled to seek independent professional advice at the expense of the Company. The Company maintains appropriate cover under a Directors’ and Officers’ insurance policy in the event of legal action being taken against any Director. Each Director is appraised through the normal appraisal process. The Executive Board members are appraised by both the Chief Executive and the Senior Independent Director and the Non-executive Board members by the Chairman. Under the leadership of the Senior Independent Director, the Non-executive Board members hold a meeting without the Chairman being present to appraise the Chairman’s performance. Each Director has access to the services of the Company Secretary if required. The Non-executive Directors are considered by the Board to be independent of management and are free to exercise independence of judgement. They have never been employees of the Company nor do they participate in the Company’s bonus arrangements. They receive no other remuneration from the Company other than the Directors’ fees. It is recognised that the Code does not treat the Chairman as independent and it is considered best practice that he should not sit on the Remuneration Committee. The Board, however, takes the view that as the number of Non-executive Directors is only two and as the Chairman does not chair the Remuneration Committee, his participation will continue. G o v e r n a n c e The table below shows the number of Board meetings and Audit Committee and the Remuneration Committee meetings held between the date the Company was admitted to AIM on 1 June 2012 and the year end and the attendance of each Director. Executive Directors David Richards James Campigli Nick Parker Non-executive Directors Paul Walker Ian Duncan Board meetings Committee meetings Audit Remuneration Possible Attended Possible Attended Possible Attended 3 3 3 3 3 3 3 3 3 3 — 2 — 2 2 — 2 — 2 2 2 — — 2 2 2 — — 2 2 WANdisco plc Annual report and accounts 2012 15 Corporate governance continued The Audit Committee The Audit Committee (“the Committee”) is established by and is responsible to the Board. It has written terms of reference. Its main responsibilities are: › › › › to monitor and be satisﬁed with the truth and fairness of the Group’s ﬁnancial statements before submission to the Board for approval, ensuring their compliance with the appropriate accounting standards, the law and the Listing Rules of the Financial Services Authority; to monitor and review the effectiveness of the Group’s system of internal control; to make recommendations to the Board in relation to the appointment of the external auditor and its remuneration, following appointment by the shareholders in general meeting, and to review and be satisﬁed with the auditor’s independence, objectivity and effectiveness on an ongoing basis; and to implement the policy relating to any non-audit services performed by the external auditor. Ian Duncan is the Chairman of the Committee. The other members of the Committee are Paul Walker and James Campigli, both of whom have gained wide experience in regulatory and risk issues. The Audit Committee meets with external auditors, without the Executive Directors being present, at least once a year. The Committee is authorised by the Board to seek and obtain any information it requires from any officer or employee of the Group and to obtain external legal or other independent professional advice as is deemed necessary by it. Meetings of the Committee are held at least three times per year to coincide with the review of the scope of the external audit and observations arising from their work in relation to internal control and to review the ﬁnancial statements. The external auditor is invited to these meetings and meets with the Audit Committee at least three times a year. At its meeting, it carries out a full review of the year-end ﬁnancial statements and of the audit, using as a basis the Report to the Audit Committee prepared by the external auditor and taking into account any signiﬁcant accounting policies, any changes to them and any signiﬁcant estimates or judgements. Questions are asked of management of any signiﬁcant or unusual transactions where the accounting treatment could be open to different interpretations. The Committee receives reports from management on the effectiveness of the system of internal controls. It also receives from the external auditor a report of matters arising during the course of the audit which the auditor deems to be of signiﬁcance for the Committee’s attention. The statement on internal controls and the management of risk, which is included in the Annual Report, is approved by the Committee. The 1998 Public Interest Disclosure Act (“the Act”) aims to promote greater openness in the workplace and ensures “whistle blowers” are protected. The Group voluntarily maintains a policy in accordance with the Act, which allows employees to raise concerns on a conﬁdential basis if they have reasonable grounds in believing that there is serious malpractice within the Group. The policy is designed to deal with concerns, which must be raised without malice and in good faith, in relation to speciﬁc issues which are in the public interest and which fall outside the scope of other Group policies and procedures. There is a speciﬁc complaints procedure laid down and action will be taken in those cases where the complaint is shown to be justiﬁed. The individual making the disclosure will be informed of what action is to be taken and a formal written record will be kept of each stage of the procedure. Any issues arising under this policy are reported to the Audit Committee. The external auditor is required to give the Committee information about policies and processes for maintaining its independence and compliance regarding the rotation of audit partners and staff. The Committee considers all relationships between the external auditor and the Company to ensure that they do not compromise the auditor’s judgement or independence particularly with the provision of non-audit services. The Remuneration Committee The Remuneration Committee is chaired by Paul Walker; the other members of the Committee are Ian Duncan and David Richards. The Committee meets at least twice a year with the other Board members in attendance as appropriate. It has written terms of reference. The Committee agrees the framework for Executive Directors’ remuneration with the Board. 16 WANdisco plc Annual report and accounts 2012 Re-election With the exception of the Annual General Meeting following the Admission to AIM, Directors are subject to re-election at the Annual General Meeting following their appointment. In addition, at each Annual General Meeting one-third (or whole number less than one-third) of the Directors will retire by rotation. Shareholder communications The Chairman and the Chief Financial Officer regularly meet with institutional shareholders to foster a mutual understanding of objectives. The Directors encourage the participation of all shareholders, including private investors, at the Annual General Meeting and as a matter of policy the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the meeting. The Annual Report and Accounts is published on the Company’s website, www.wandisco.com, and can be accessed by shareholders. Internal controls The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Group highlights potential ﬁnancial and non-ﬁnancial risks which may impact on the business as part of the quarterly management reporting procedures. The Board receives these quarterly management reports and monitors the position at Board meetings. The Board conﬁrms that there are ongoing processes for identifying, evaluating and mitigating the signiﬁcant risks faced by the Group. The processes have been in place from the date of Admission to AIM up to the date of approval of the Annual Report and Accounts, consistent with the guidance for Directors on internal control issued by the Turnbull Committee. The Group’s procedures include: internal ﬁnancial control and monitoring › clear responsibility on the part of line and ﬁnancial management for the maintenance of good ﬁnancial controls and the production of accurate and timely ﬁnancial management information; › the control of key ﬁnancial risks through appropriate authorisation levels and segregation of accounting duties; › detailed monthly budgeting and reporting of trading results, balance sheets and cash ﬂows, with regular review by management of variances from budget; › › reporting on any non-compliance with internal ﬁnancial controls and procedures; and review of reports issued by the external auditor. The Audit Committee on behalf of the Board reviews reports from the external auditor together with management’s response regarding proposed actions. In this manner they have reviewed the effectiveness of the system of internal controls for the period covered by the accounts. G o v e r n a n c e WANdisco plc Annual report and accounts 2012 17 Statement of Directors’ responsibilities in respect of the Annual Report and the ﬁnancial statements The Directors are responsible for keeping proper accounting records that 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 (Jersey) Law 1991. 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 are responsible for preparing the ﬁnancial statements in accordance with applicable law and International Financial Reporting Standards. Company law requires the Directors to prepare ﬁnancial statements for each ﬁnancial year which give a true and fair view of the state of affairs of the Company and of the proﬁt or loss of the Company for that period. In preparing these ﬁnancial statements, the Directors are required to: select suitable accounting policies and apply them consistently; › › make judgements and estimates which are reasonable and prudent; › state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; and › prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. 18 WANdisco plc Annual report and accounts 2012 Independent auditor’s report to the members of WANdisco plc We have audited the Group ﬁnancial statements of WANdisco plc for the year ended 31 December 2012 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes. The ﬁnancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the EU. This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. 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 Statement of Directors’ Responsibilities set out on page 18, the Directors are responsible for the preparation of ﬁnancial statements which 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 Ethical Standards for Auditors. Scope of the audit of the ﬁnancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufficient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁcant accounting estimates made by the Directors; and the overall presentation of the ﬁnancial statements. In addition, we read all the ﬁnancial and non-ﬁnancial information in the Annual Report to identify material inconsistencies with the audited ﬁnancial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on ﬁnancial statements In our opinion the ﬁnancial statements: › give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the EU of the state of the Group’s affairs as at 31 December 2012 and of the Group’s loss for the year then ended; and › have been properly prepared in accordance with the Companies (Jersey) Law 1991. Other matter – prior period ﬁnancial statements In forming our opinion on the ﬁnancial statements, which is not modiﬁed we note that the prior period consolidated ﬁnancial statements were not audited. Consequently, International Standards on Auditing (UK and Ireland) require the auditor to state that the corresponding ﬁgures contained within these consolidated ﬁnancial statements are unaudited. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: › proper accounting records have not been kept by the Company; or › proper 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 › we have not received all the information and explanations we require for our audit. Johnathan Pass for and on behalf of KPMG LLP Chartered Accountants 25 April 2013 Notes › The maintenance and integrity of the WANdisco.com website is the responsibility of the Directors; the work carried out by auditors does not involve consideration of these matters and accordingly, KPMG LLP accepts no responsibility for any changes that may have occurred to the ﬁnancial statements or our audit report since 25 April 2013. KPMG LLP has carried out no procedures of any nature subsequent to 25 April 2013 which in any way extends this date. › Legislation in Jersey governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. The Directors shall remain responsible for establishing and controlling the process for doing so, and for ensuring that the ﬁnancial statements are complete and unaltered in any way. WANdisco plc Annual report and accounts 2012 19 i F n a n c a i l s t a t e m e n t s Consolidated statement of comprehensive income for the year ended 31 December 2012 Year ended 31 December 2012 Year ended 31 December 2011 Revenue Cost of sales Gross proﬁt Operating expenses Loss from operations Finance (expense)/income Loss before tax Taxation Loss for the year Other comprehensive income Foreign currency translation differences – foreign operations Other comprehensive income for the period net of tax Total comprehensive income for the period Loss per share Basic and diluted Pre- exceptional $’000 Exceptional items $’000 Notes 6, 8 8, 9 11 6,031 (497) 5,534 (11,419) (5,885) (216) (6,101) — (6,101) 16 — Total $’000 6,031 (497) 5,534 (14,075) (8,541) 560 (7,981) — (7,981) — — — (2,656) (2,656) 776 (1,880) — (1,880) — — 16 — Pre- exceptional $’000 Exceptional items $’000 3,878 (303) 3,575 (4,524) (949) (75) (1,024) 25 (999) (7) — — (95) (95) (110) (205) — (205) — (205) — — Total $’000 3,878 (398) 3,480 (4,634) (1,154) (75) (1,229) 25 (1,204) (7) — (6,085) (1,880) (7,965) (1,006) (205) (1,211) 12 $0.49 $0.26 20 WANdisco plc Annual report and accounts 2012 Consolidated statement of ﬁnancial position as at 31 December 2012 Assets Intangible assets Property, plant and equipment Total non-current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Loans and borrowings Trade and other payables Deferred income Deferred government grant Provisions Total current liabilities Loans and borrowings Deferred tax Non-current liabilities Total liabilities Net assets/(liabilities) Equity Share capital Share premium Translation reserve Merger reserve Retained earnings Total equity/(deﬁcit) Notes 13 14 16 18 19 17 17 20 19 11 22 22 22 22 22 2012 $’000 5,541 129 5,670 2,486 14,545 17,031 22,701 — (3,665) (6,368) (36) (393) 2011 $’000 1,343 43 1,386 1,188 74 1,262 2,648 (705) (2,566) (4,466) — (414) (10,462) (8,151) — (5) (5) (10,467) 12,234 3,388 23,332 6 1,247 (15,739) 12,234 (65) (5) (70) (8,221) (5,573) 448 — (10) — (6,011) (5,573) The ﬁnancial statements on pages 20 to 43 were approved by the Board of Directors on 25 April 2013 and signed on its behalf by: David Richards Chief Executive Officer Nick Parker Chief Financial Officer Company registered number 110497 i F n a n c a i l s t a t e m e n t s WANdisco plc Annual report and accounts 2012 21 Consolidated statement of changes in equity for the year ended 31 December 2012 Share premium $’000 Translation reserve $’000 Merger reserve $’000 Share capital $’000 448 — — — — — — — — — 448 448 — — — 2,761 (1,247) 1,289 — 54 83 — — — — — — — — — — — — — — — — — — 21,908 (1,946) 95 3,275 — 2,940 3,388 23,332 23,332 Retained earnings $’000 (5,054) Total $’000 (4,609) (1,204) (1,204) — (7) (1,204) (1,211) — 174 — — 73 247 (6,011) (6,011) — 174 — — 73 247 (5,573) (5,573) (7,981) — (7,981) 16 — — — — — — — — — — — — — — — (7,981) (7,965) — 1,247 — — — — — — — — — — (2,560) 813 2,761 — 23,197 (1,946) 149 798 813 1,247 1,247 (1,747) 25,772 (15,739) 12,234 (3) — (7) (7) — — — — — — (10) (10) — 16 16 — — — — — — — — 6 Balance at 1 January 2011 Total comprehensive income for the period Loss for the year Foreign currency translation differences Total comprehensive income for the period Transactions with owners recorded directly in equity Issue of shares Waiver of loan from shareholders Shares issued in exchange for WANdisco, Inc. shares Share issue costs Share-based payments charge Total contributions by and distributions to owners Balance at 31 December 2011 Balance at 1 January 2012 Total comprehensive income for the period Loss for the year Other comprehensive income Total comprehensive income for the period Transactions with owners recorded directly in equity Issue of shares by WANdisco Inc. Shares issued by WANdisco plc in exchange for WANdisco Inc. shares Shares issued by WANdisco plc Share issue costs Shares allotted under share option scheme Shares issued as part of AltoStor acquisition Share-based payments charge Total contributions by and distributions to owners Balance at 31 December 2012 22 WANdisco plc Annual report and accounts 2012 Consolidated statement of cash ﬂows for the year ended 31 December 2012 Cash ﬂows from operating activities Loss before taxation Adjustments for: Depreciation Amortisation of intangibles Finance costs Foreign exchange Change in trade and other receivables Change in trade and other payables Change in deferred income Grant income received Grant income released Change in provisions Share-based payment charge Interest paid Net cash (used in)/generated from operating activities Cash ﬂows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Acquisition of subsidiary Development expenditure in respect of intangible assets Net cash used in investing activities Cash ﬂow from ﬁnancing activities Net proceeds from share issue Proceeds from loans Repayment of borrowings Net cash generated from ﬁnancing activities Net increase/(decrease) in cash and cash equivalents Effect of exchange rate ﬂuctuations on cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period Notes 2012 $’000 2011 $’000 (7,981) (1,229) 52 2,017 216 (776) (1,394) 1,093 1,902 139 (105) (21) 813 (101) (4,146) (138) (1,000) (1,500) (2,912) (5,550) 24,161 — (770) 23,391 13,695 776 74 14,545 46 980 75 (6) (959) 1,007 740 — — 246 73 (75) 898 (7) — — (1,207) (1,214) 362 (51) 311 (5) — 79 74 27 i F n a n c a i l s t a t e m e n t s WANdisco plc Annual report and accounts 2012 23 Notes to the consolidated ﬁnancial statements 1. Reporting entity WANdisco plc is a public limited company incorporated and domiciled in Jersey. The Company’s ordinary shares are traded on AIM. The consolidated ﬁnancial statements of the Company for the year ended 31 December 2012 comprise the Company and its subsidiaries (together referred to as “the Group”). 2. Basis of preparation (a) Statement of compliance The ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as endorsed by the EU, IFRIC Interpretations, and under the historical cost accounting convention, and with those parts of Jersey Law (1991) applicable to companies under IFRS. WANdisco plc was incorporated on 16 April 2012. On 16 May 2012 WANdisco plc acquired WANdisco, Inc. The acquisition of WANdisco, Inc. by WANdisco plc has been accounted for as a reverse acquisition and the consolidated IFRS ﬁnancial information is therefore a continuation of the ﬁnancial information of the WANdisco business, which was previously wholly owned by the WANdisco, Inc. group. On 18 May 2012 WANdisco plc acquired the whole of the issued share capital of WANdisco International Limited from WANdisco, Inc. Unaudited comparative ﬁnancial information The 2011 comparative information represents the consolidated results of the former WANdisco Inc. group consisting of WANdisco Inc. and WANdisco International Limited, prior to the acquisition of WANdisco Inc. by WANdisco plc. KPMG LLP has not issued a statutory audit opinion on this comparative information as there was previously no requirement for an audit. Under article 105(11) of the Companies (Jersey) Law 1991, a parent company preparing consolidated ﬁnancial statements need not present solus (parent company only) ﬁnancial information, unless required to do so by an ordinary resolution of the company’s members. (b) Going concern As at 31 December 2012 the Group had net assets of $12,234,000 (31 December 2011: net liabilities of $5,573,000) as set out in the Consolidated Statement of Financial Position on page 21. Following the admission of the Ordinary Shares to trading on AIM, WANdisco plc has considerable ﬁnancial resources. The Directors have prepared detailed forecasts of the Group’s performance over the coming years. As a consequence, the Directors believe that WANdisco plc and the Group are well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries the Directors have a reasonable expectation that WANdisco plc and the Group have sufficient working capital available for its present requirements, that is for the next twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the Group ﬁnancial statements. (c) Functional and presentational currency The consolidated ﬁnancial statements are presented in US dollars, which is also the presentational currency of the Group. Billings to the Group’s customers during the year were all in US dollars by WANdisco, Inc. with certain costs being incurred by WANdisco International Limited in sterling. All ﬁnancial information has been rounded to the nearest thousand US dollars unless otherwise stated. (d) Use of estimates and judgements The preparation of ﬁnancial information in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The accounting policy descriptions set out the areas where judgement needs to be exercised, the most signiﬁcant of which are revenue recognition, research and development and intangible assets. ‘Information about signiﬁcant areas of estimation uncertainty in applying accounting policies that have the most signiﬁcant effect on the amounts recognised in the consolidated ﬁnancial information is included in the following Notes: › Note 13 – valuation of intangible assets › Note 20 – provisions › Note 23 – valuation of share-based payments 24 WANdisco plc Annual report and accounts 2012 3. Signiﬁcant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated ﬁnancial statements. (a) Basis of consolidation The Group ﬁnancial statements consolidate those of the company and its subsidiary undertakings. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the ﬁnancial and operating policies of an entity so as to obtain beneﬁts from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The ﬁnancial information of subsidiaries is included from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated ﬁnancial information. Business combinations All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Acquisitions on or after 1 January 2009 For acquisitions on or after 1 January 2009, the Group measures goodwill at the acquisition date as: › › › › the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identiﬁable assets acquired and liabilities assumed. When the excess is negative, the negative goodwill is recognised immediately in proﬁt or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. (b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency, US dollars, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year, where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the translation reserve or non-controlling interest, as the case may be. i F n a n c a i l s t a t e m e n t s WANdisco plc Annual report and accounts 2012 25 Notes to the consolidated ﬁnancial statements continued 3. Signiﬁcant accounting policies continued (c) Financial instruments (i) Non-derivative ﬁnancial instruments Non-derivative ﬁnancial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. (ii) Classiﬁcation of ﬁnancial instruments issued by the Group Following the adoption of IAS 32, ﬁnancial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Group to deliver cash or other ﬁnancial assets or to exchange ﬁnancial assets or ﬁnancial liabilities with another party under conditions that are potentially unfavourable to the Group; and (b) where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a ﬁxed amount of cash or other ﬁnancial assets for a ﬁxed number of its own equity instruments. To the extent that this deﬁnition is not met, the proceeds of issue are classiﬁed as a ﬁnancial liability. Where the instrument so classiﬁed takes the legal form of the Company’s own shares, the amounts presented in these ﬁnancial statements for called up share capital and share premium account exclude amounts in relation to those shares. (d) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment at 1 January 2009, the Group’s date of transition to IFRS, was determined by reference to its carrying value under UK and US Generally Accepted Accounting Principles. (ii) Depreciation Depreciation is recognised in proﬁt or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are as follows: › computer equipment › ﬁxtures and ﬁttings › leasehold improvements – 3 years – 3 years – 3 years Depreciation methods, useful lives and residual values are reviewed at each reporting date. (e) Intangible assets and goodwill (i) Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. 26 WANdisco plc Annual report and accounts 2012 3. Signiﬁcant accounting policies continued (e) Intangible assets and goodwill continued (ii) Research and development Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in proﬁt or loss when incurred. Development activities relate to software development and involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic beneﬁts are probable, and the Group intends to, and has sufficient resources to, complete development and to use or sell the asset. The expenditure capitalised includes direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. (iii) Amortisation Amortisation of capitalised research and development costs is recognised in proﬁt or loss on a straight-line basis over the estimated useful life of two years. Intangibles in relation to acquired software are amortised over an estimated useful life of two years. Amortisation of the intangible asset recognised on the acquisition of AltoStor is recognised in proﬁt or loss on a straight-line basis over the estimated useful life of three years. (f) Impairment (excluding deferred tax assets) Financial assets (including receivables) A ﬁnancial asset not carried at fair value through proﬁt or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A ﬁnancial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset and that the loss event had a negative effect on the estimated future cash ﬂows of that asset that can be estimated reliably. An impairment loss in respect of a ﬁnancial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash ﬂows discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through proﬁt or loss. Non-ﬁnancial assets The carrying amounts of the Group’s non-ﬁnancial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indeﬁnite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inﬂows from continuing use that are largely independent of the cash inﬂows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units (CGUs). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reﬂects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to beneﬁt from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in proﬁt or loss. Impairment losses recognised in respect of CGUs are allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. WANdisco plc Annual report and accounts 2012 27 i F n a n c a i l s t a t e m e n t s Notes to the consolidated ﬁnancial statements continued 3. Signiﬁcant accounting policies continued (g) Employee beneﬁts (i) Pension plans There are no Group pension schemes to which the Group entities contribute or have any liabilities. The Group is not obliged to make any contributions to the UK stakeholder scheme and it currently has no members. (ii) Termination beneﬁts Termination beneﬁts are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date or to provide termination beneﬁts as a result of an offer made to encourage voluntary redundancy. (iii) Short-term beneﬁts Short-term employee beneﬁt obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or commission plans where the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (iv) Share-based payment transactions The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reﬂect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reﬂect such conditions and there is no true-up for differences between expected and actual outcomes. Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group. No cash settled share-based payment awards have been granted to employees. (h) Revenue recognition (i) Software licences Sales of software licences are recognised once the licence has been granted and the customer has been provided with access to the software. Revenue derived from sales of licences is spread over the period of the licence. Where licences are perpetual, revenue is recognised in full once the agreement is in place. (ii) Support subscriptions Sales of support subscriptions are recognised on a straight-line basis over the period of the contract. (iii) Maintenance, training and other services Sales of maintenance, training and other services are recognised on a straight-line basis over the period of the contract. (iv) Customer bookings Customer bookings are the amounts invoiced to customers for software licences, subscriptions and services, net of discounts and sales taxes. The operating cycle of the business is up to 36 months. (i) Operating lease payments Payments made under operating leases are recognised in proﬁt or loss on a straight-line basis over the term of the lease. (j) Finance income and expenses Finance expenses comprise interest expense on borrowings and the use of debt factoring facilities. (k) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in proﬁt or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. 28 WANdisco plc Annual report and accounts 2012 3. Signiﬁcant accounting policies continued (k) Taxation continued Deferred tax is recognised using the statement of ﬁnancial position method, providing for temporary differences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised in respect of temporary differences, relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable proﬁts will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised. (l) Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset , the fair value is credited to a deferred income account and is released to the statement of comprehensive income over the expected useful life of the assets. (m) Segmental reporting The Directors consider there to be one operating segment, being that of development and sale of licences for software and related maintenance. The Group has adopted IFRS 8 “Operating Segments” from the date of transition to IFRS. IFRS 8 requires the Group to determine and present its operating segments based on information which is provided internally to the chief operating decision maker (“the CODM”). The CODM, who is responsible for allocating resources and assessing the performance of the operating segment, has been identiﬁed as the Chief Executive Officer. (n) Provisions Provisions are created where the Group has a present legal or constructive obligation as a result of a past event, where it is probable it will result in an outﬂow from the Group. (o) Cost of sales Cost of sales includes commissions earned on sales and direct costs relating to software supply. (p) Exceptional items Exceptional items comprise items of income and expense that are material in amount and unlikely to recur and which merit separate disclosure in order to provide an understanding of the Group’s underlying ﬁnancial performance. (q) New accounting standards and amendments (i) New and amended standards adopted by the Group There are no new IFRSs or IFRIC interpretations that are effective for the ﬁrst time for the ﬁnancial year beginning on or after 1 January 2012 that would be expected to have a material impact on the Group. (ii) New standards, amendments and interpretations issued but not effective for the ﬁnancial year beginning 1 January 2012 and not early adopted IAS 1 “Presentation of Items of Other Comprehensive Income” requires an entity to present the items of other comprehensive income that may be recycled to proﬁt or loss in the future if certain conditions are met, separately from those that would never be recycled to proﬁt or loss. The Group is yet to assess IAS 1’s full impact and intends to adopt IAS 1 no later than the accounting period beginning on or after 1 July 2012, subject to endorsement by the EU. IAS 19 “Employee Beneﬁts” was amended in June 2011. The amendment does not impact the Group. IFRS 10 “Consolidated Financial Statements” builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated ﬁnancial statements of the parent company. The Group is yet to assess IFRS 10’s full impact and intends to adopt IFRS 10 no later than the accounting period beginning on or after 1 January 2014, subject to endorsement by the EU. IFRS 13 “Fair Value Measurement”. This is a new standard to replace existing guidance on fair value measurement in different IFRSs. This will be adopted by the Group from 1 January 2013. IAS 32 “Offsetting Financial Assets and Financial Liabilities”. This will be adopted by the Group from 1 January 2014. WANdisco plc Annual report and accounts 2012 29 i F n a n c a i l s t a t e m e n t s Notes to the consolidated ﬁnancial statements continued 4. Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both ﬁnancial and non-ﬁnancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes speciﬁc to that asset or liability. (a) Intangible assets Whilst development costs are valued at cost less amortisation, their carrying values are assessed to ensure that they do not exceed the recoverable amount at the end of each reporting period. The recoverable amount of other intangible assets is based on the discounted cash ﬂows expected to be derived from the use and eventual sale of products developed. (b) Trade and other receivables The fair value of short-term trade and other receivables is deemed to be its book value less any impairment provision. The effect of discounting is considered to be immaterial. (c) Non-derivative ﬁnancial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash ﬂows, discounted at the market rate of interest at the reporting date. 5. Segmental analysis Operating segments The Directors consider there to be one operating segment, being that of development and sale of licences for software and related maintenance. Geographical segments The Group recognises revenue in three geographical regions based on the location of customers, as set out in the following table: North America Europe Rest of the world Total 2012 $’000 5,257 589 185 6,031 2011 $’000 3,028 662 188 3,878 Management makes no allocation of costs, assets or liabilities between these segments since all trading activities are operated as a single business unit. The Group has two customers representing individually over 10% each and in aggregate over 28% of revenue at $1,741,243. 6. Operating expenses Loss for the year has been arrived at after charging: Staff costs (see Note 10) Research and development – amortisation charge Amortisation of intangibles Depreciation of ﬁxed assets Auditor’s remuneration (see Note 7) 2012 $’000 5,911 1,801 216 52 1,178 Reconciliation of operating loss to earnings before interest, taxation, depreciation and amortisation (EBITDA) Operating loss Adjusted for: Amortisation and depreciation Exceptional items within operating expenses EBITDA before exceptional items Adjusted for share-based payments Adjusted EBITDA before exceptional items 30 WANdisco plc Annual report and accounts 2012 2012 $’000 (8,541) 2,070 2,656 (3,815) 813 (3,002) 2011 $’000 2,317 980 — 46 — 2011 $’000 (1,154) 1,026 205 77 73 150 7. Auditor’s remuneration Audit of these ﬁnancial statements Amounts receivable by auditor in respect of: Audit of ﬁnancial statements of subsidiaries pursuant to legislation Other services related to taxation Advisory work in respect of AIM listing Other services pursuant to legislation 2012 $’000 79 16 41 1,020 22 1,178 2011 $’000 — — — — — — In accordance with the relevant prevailing legislation, none of the Group entities were required to have an audit of their ﬁnancial statements for the year ended 31 December 2011. $1,089,000 of the auditor’s remuneration is included with the exceptional cost line (see note 8). 8. Exceptional items Exceptional items comprise the following: Expenses related to Admission to AIM Penalties levied by US state and federal tax authorities Provision for claims by former employees Redundancy costs Currency exchange gain Amounts waived by supplier 2012 $’000 2,656 — — — (776) — 1,880 2011 $’000 — 151 95 24 — (65) 205 The Group incurred one-off legal and professional fees in the year ended 31 December 2012 in relation to the placing of Ordinary Shares and Admission to AIM. Penalties levied by US state and federal tax authorities relate to charges for late payment of payroll taxes. Redundancy costs relate to certain speciﬁc organisational change activities in both the UK and the US. The exchange gain is a result of the fact the majority of the Group cash balance is held in sterling denominated accounts. Following a dispute with a supplier it was agreed that all monies due to them would be waived. 9. Net ﬁnance costs (pre-exceptionals) Interest receivable – bank Interest receivable – promissory notes (see Note 26) Exchange losses Interest payable on bank borrowings Charges on debt factoring 2012 $’000 (79) (1) 215 44 37 216 2011 $’000 — — — 44 31 75 i F n a n c a i l s t a t e m e n t s WANdisco plc Annual report and accounts 2012 31 Notes to the consolidated ﬁnancial statements continued 10. Staff numbers and costs Wages and salaries Social security costs Other pension costs Share-based payments (see Note 23) Less capitalised costs Total staff costs 2012 $’000 6,888 647 145 813 (2,582) 5,911 2011 $’000 2,913 298 100 73 (1,067) 2,317 The average number of persons employed by the Group (including Directors), analysed by category, was as follows: Software development Selling and distribution Administration Total number of employees Remuneration of key management personnel Short-term employee beneﬁts of key management personnel 2012 Number 2011 Number 41 18 8 67 2012 Total $’000 3,298 24 12 4 40 2011 Total $’000 1,141 There were no other long-term beneﬁts, post-employment beneﬁts or termination beneﬁts in the year ended 31 December 2012 (2011: $nil). In addition to the above a share-based payment charge of $441,380, in relation to share options granted to key management personnel, was incurred in the year ended 31 December 2012 (2011: $33,371). Further details on the remuneration, share options and pension entitlement of the Directors is included in the Remuneration Report on page 14. 11. Taxation Current tax expense Current year Adjustment for prior years Deferred tax expense Origination and reversal of timing differences Impact of changes in tax rates Adjustment in respect of prior years Total tax credit Reconciliation of effective tax rate Loss before taxation Expected tax credit based on the Group’s domestic tax rate of 40% Effects of: Non-deductible expenses Tax rates in foreign jurisdictions R&D tax credits Losses not recognised for current or deferred tax Taxation credit for the year 2012 % 40% (16.6%) (0.1%) 2.9% (26.1%) — 2012 $’000 7,981 3,192 (1,327) (11) 229 (2,083) — 32 WANdisco plc Annual report and accounts 2012 2012 $’000 2011 $’000 — — — — — — — 2011 % 40% (30.3%) 1.8% 2.0% (11.5%) 2.0% 25 — — — — — 25 2011 $’000 1,229 492 (372) 22 24 (141) 25 11. Taxation continued Factors affecting the current and future tax charges The 2012 Budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014. Reductions in the rate from 26% to 24% (effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantially enacted on 26 March 2012 and 3 July 2012 respectively. This will reduce the Group’s future current tax charge accordingly. The deferred taxation liability for UK tax resident members of the Group at 31 December 2012 has been calculated based on the rate of 23% substantively enacted at the balance sheet date. It has not yet been possible to quantify the full anticipated effect of the announced further 1% rate reduction, although this will further reduce the Group’s future current tax charge and reduce the Group’s deferred taxation liability accordingly. Deferred tax assets and liabilities Deferred tax liabilities are attributable to the following temporary differences in respect of property, plant and equipment: Deferred tax liability at 1 January Recognised in proﬁt or loss Deferred tax liabilities at 31 December 2012 $’000 (5) — (5) 2011 $’000 (5) — (5) The Group has unrecognised deferred tax assets of $1,505,000 (2011: $681,000) in respect of tax losses arising in the Group. The Directors consider that there is not sufficient certainty over the availability of future taxable proﬁts against which these losses may be offset and no asset has therefore been recognised. 12. Loss per share Basic loss per share Basic loss per share is calculated based on the loss attributable to Ordinary Shareholders and a weighted average number of Ordinary Shares outstanding: Loss for the year attributable to Ordinary Shareholders Weighted average number of Ordinary Shares At start of year Effect of shares issued in the year Weighted average number of Ordinary Shares during the year Basic loss per share Adjusted loss per share 2012 $’000 7,981 2012 ‘000s of shares 4,549 11,831 16,380 $ 0.49 2011 $’000 1,204 2011 ‘000s of shares 4,541 8 4,549 $ 0.26 Adjusted loss per share is based on the result attributable to Ordinary Shareholders before exceptional items and the cost of share-based payments, and the weighted average number of Ordinary Shares outstanding: i F n a n c a i l Loss for the year attributable to Ordinary Shareholders Add back: Exceptional items Share-based payments Adjusted basic loss Adjusted loss per share 2012 $’000 7,981 (1,880) (813) 5,288 $ 0.33 s t a t e m e n t s 2011 $’000 1,204 (205) (73) 926 $ 0.20 WANdisco plc Annual report and accounts 2012 33 Notes to the consolidated ﬁnancial statements continued 12. Loss per share continued Diluted loss per share Due to the Group having losses in each of the periods, the fully diluted loss per share for disclosure purposes, as shown in the Consolidated Statement of Comprehensive Income, is the same as for the basic loss per share. Other intangible $'000 Development costs $’000 Software $’000 Total $’000 — — — — — — — 2,298 10 — — — 2,308 — — — — — — — (94) — — — (94) — 2,214 2,185 — — 1,207 — 3,392 3,392 — — 2,912 — — 6,304 (1,069) (980) — — — (2,049) (2,049) (1,801) — — — (3,850) 1,343 2,454 — — — — — — — — 1,000 — (5) — 995 — — — — — — — (122) — — — (122) — 873 2,185 — — 1,207 — 3,392 3,392 2,298 1,010 2,912 (5) — 9,607 (1,069) (980) — — — (2,049) (2,049) (2,017) — — — (4,066) 1,343 5,541 13. Intangible assets Cost At 1 January 2011 Acquisitions through business combinations Additions – externally purchased Additions – own work capitalised Disposals At 31 December 2011 At 1 January 2012 Acquisitions through business combinations (Note 27) Additions – externally purchased Additions – own work capitalised Effect of movement in foreign exchange Disposals At 31 December 2012 Amortisation At 1 January 2011 Amortisation charge for the year Impairment charge for the year Effect of movement in foreign exchange Disposals At 31 December 2011 At 1 January 2012 Amortisation charge for the year Impairment charge for the year Effect of movement in foreign exchange Disposals At 31 December 2012 Net book value At 31 December 2011 At 31 December 2012 34 WANdisco plc Annual report and accounts 2012 13. Intangible assets continued The carrying amount of the intangible assets is allocated across cash-generating units (CGUs). A CGU is deﬁned as the smallest group of assets that generate cash inﬂows from continuing use, that are largely independent of the cash inﬂows of other assets or groups thereof. The recoverable amount of the CGUs are determined using Value In Use (VIU) calculations. As at 31 December 2012 the Group had one CGU, the DConE CGU. The Group’s patented DConE replication technology forms the basis of the Group’s products for the ALM market. This technology also underpins the enterprise-ready, Apache-Hadoop products we have developed for the big data market. Development costs are predominantly capitalised staff costs associated with new products and services. Development costs are allocated to the DConE CGU. The recoverable amount of the DConE CGU has been calculated on a VIU basis at both 31 December 2012 and 31 December 2011. These calculations use cash ﬂow projections based on ﬁnancial forecasts and appropriate long-term growth rates. To prepare VIU calculations, the cash ﬂow forecasts are discounted back to present value using a pre-tax discount rate of 8.0% The Directors have reviewed the recoverable amount of the CGU and do not consider there to be any indication of impairment. Other intangibles arose as part of the acquisition of AltoStor, Inc. for further details see note 27. The intangibles arising as part of the AltoStor acquisition are allocated to the DConE CGU. The recoverable amount of which has been determined on a VIU basis as described above. On 19 September 2012 WANdisco International Limited purchased an item of software from Syntevo GmBH for consideration of $1 million. This software is being amortised over a period of two years and is allocated to the DConE CGU as described above. The above amortisation charge forms part of operating expenses in the Statement of Comprehensive Income. 14. Property, plant and equipment Cost At 1 January 2011 Additions Disposals At 31 December 2011 At 1 January 2012 Additions Disposals At 31 December 2012 Depreciation At 1 January 2011 Depreciation charge for the year Effect of movement in foreign exchange Disposals At 31 December 2011 At 1 January 2012 Depreciation charge for the year Effect of movement in foreign exchange Disposals At 31 December 2012 Net book value At 31 December 2011 At 31 December 2012 Leasehold improvements $’000 Fixtures and ﬁttings $’000 Computers $’000 — — — — — 30 — 30 — — — — — — (2) — — (2) — 28 86 — — 86 86 65 — 151 (24) (26) — — (50) (50) (28) — — (78) 36 73 76 7 — 83 83 43 (18) 108 (56) (20) — — (76) (76) (22) — 18 (80) 7 28 Total $’000 162 7 — 169 169 138 (18) 289 (80) (46) — — (126) (126) (52) — 18 (160) 43 129 WANdisco plc Annual report and accounts 2012 35 i F n a n c a i l s t a t e m e n t s Notes to the consolidated ﬁnancial statements continued 15. Investments in subsidiaries The Group has the following investments in subsidiaries: WANdisco International Limited WANdisco, Inc. AltoStor, Inc. Country of incorporation Holding Proportion of shares held UK US US Ordinary Shares 100% Ordinary Shares 100% Ordinary Shares 100% All of the above entities are included in the consolidated ﬁnancial statements. For details of the acquisition of AltoStor, Inc. see Note 27. 16. Trade and other receivables Nature of business Development and provision of global collaboration software Development and provision of global collaboration software Development and provision of global collaboration software Trade receivables Other receivables Corporation tax Prepayments None of the Group’s receivables fall due after more than one year. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Ageing of trade receivables: Due from current month Due from previous month Due from earlier months Total trade receivables All trade receivables are denominated in US dollars. 17. Trade and other payables Trade payables Other payables and accruals Deferred income Deferred income Deferred income represents invoiced sales for which services to customers will be provided in future years. The movement on the deferred income balance is as follows: At 1 January Customer bookings Released to revenue At 31 December 2012 $’000 2,301 82 — 103 2,486 2012 $’000 2,248 8 45 2,301 2012 $’000 830 2,835 6,368 10,033 2012 $’000 4,466 7,916 (6,014) 6,368 2011 $’000 992 50 96 50 1,188 2011 $’000 954 24 14 992 2011 $’000 306 2,260 4,466 7,032 2011 $’000 3,726 4,618 (3,878) 4,466 Included in the 31 December 2012 year-end balance are amounts falling due after more than one year of $2,166,000 (2011: $1,548,000). 36 WANdisco plc Annual report and accounts 2012 18. Cash and cash equivalents Cash at bank and in hand Short-term deposits Total cash and cash equivalents 2012 $’000 1,158 13,387 14,545 2011 $’000 74 — 74 At 31 December 2012 the Group had $13,387,000 on short-term deposit. This balance matured in two instalments, $6,693,500 on 8 February 2013 and $6,693,500 on 14 March 2013. 19. Interest-bearing loans and borrowings Non-current liabilities: Secured bank loans Current liabilities: Current portion of secured bank loans Current portion of other loans Total current loans and borrowings Total loans and borrowings Terms and debt repayment schedule Terms and conditions of outstanding loans were as follows: Secured bank loans: Citibank business credit account Citibank instalment loan account Other loans: Loans from shareholders Loans from related party* Nominal interest rate Year of maturity 5.00% 5.50% 0.51% — 2012 2016 2012 — 2012 Face value $’000 Carrying amount $’000 — — — — — — — — * There were no written arrangements on the terms or interest rates on the loans from related parties. Following the Admission to trading on AIM, all outstanding loan balances were settled in full. 2012 $’000 — — — — — 2011 Face value $’000 150 85 112 423 20. Provisions At 1 January 2011 Provisions established in the year Provisions utilised in the year Provisions released in the year At 31 December 2011 At 1 January 2012 Provisions established in the year Provisions utilised in the year Provisions released in the year At 31 December 2012 Employee claim $’000 US penalties $’000 Reorganisation $’000 — 95 — — 95 95 — (95) — — 168 151 — — 319 319 — (187) — 132 — — — — — — 468 (207) — 261 2011 $’000 65 170 535 705 770 Carrying amount $’000 150 85 112 423 Total $’000 168 246 — — 414 414 468 (489) — 393 Penalties levied by US state and federal tax authorities relate to charges for late payment of payroll taxes. An estimate has been made of the likely liability based on the current legislation in place which the directors believe is a realistic assessment. The timing of the cash ﬂow associated with these penalties is not certain and is dependent upon the progress of discussions with the relevant authorities. The reorganisation provision is the Directors’ best estimate of the costs associated with the IPO process and the related Group reorganisation. A full settlement was agreed and made in the year ended 31 December 2012 in relation to the claim from a former employee. WANdisco plc Annual report and accounts 2012 37 i F n a n c a i l s t a t e m e n t s Notes to the consolidated ﬁnancial statements continued 21. Financial instruments and risk management The Group’s principal ﬁnancial instruments are cash and trade receivables. The Group has exposure to the following risks from its use of ﬁnancial instruments: Market risk The Group may be affected by general market trends, which are unrelated to the performance of the Group itself. The Group’s success will depend on market acceptance of the Group’s products and there can be no guarantee that this acceptance will be forthcoming. Market opportunities targeted by the Group may change and this could lead to an adverse effect upon its revenue and earnings. Credit risk Credit risk arises from cash and cash equivalents and credit exposure to the Group’s customers. Credit ratings of institutions which hold the Group’s ﬁnancial assets are regularly monitored to ensure they meet the minimum credit criteria set by the Board through the Group treasury policy. The credit quality of customers is assessed by taking into account their ﬁnancial position, past experience and other factors. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its ﬁnancial obligations as they fall due. The Board is responsible for ensuring that the Group has sufficient liquidity to meet its ﬁnancial liabilities as they fall due and does so by monitoring cash ﬂow forecasts and budgets. The Board has considered the cash ﬂow forecasts for the next twelve months which show that the Group expects to operate within its working capital facilities throughout the year. Any excess cash balances are held in short-term, interest-bearing deposit accounts. Capital management The Group deﬁnes the capital that it manages as its total equity. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and support the growth of the business. Foreign currency risk The Group’s operations are split between the US, UK, mainland Europe and China, and as a result the Group incurs costs in currencies other than its presentational currency of US dollars. The Group also holds cash and cash equivalents in non-US Dollar denominated bank accounts. The following table shows the denomination of the year-end cash and cash equivalents balance: 2012 cash and cash equivalents 2011 cash and cash equivalents GBP $’000 14,258 (4) US Dollar $’000 287 78 Total $’000 14,545 74 Had the foreign exchange rate between US$ and £ sterling changed by 5%, this would affect the loss for the year and net assets of the Group by $712,000. Fair values of ﬁnancial assets and ﬁnancial liabilities There are no material differences between the fair value and the book value of the Group’s ﬁnancial assets and liabilities. 38 WANdisco plc Annual report and accounts 2012 22. Share capital and reserves Share capital Allotted and fully paid The ordinary share capital of WANdisco plc is designated in sterling. At 1 January 2011 Loss for the year Share-based payment charge Loan waiver Foreign exchange At 31 December 2011 At 1 January 2012 Loss for the year Shares issued by WANdisco Inc. Shares issued by WANdisco plc in exchange for WANdisco Inc. shares Shares issued by WANdisco plc Share issue costs Shares allotted under option scheme Shares issued in AltoStor acquisition Foreign exchange Share-based payment charge Share capital $’000 448 — — — — 448 448 — 2,761 (1,247) 1,289 — 54 83 — — 2012 Number 2012 $’000 2011 Number 21,420,788 3,388 4,549,254 Share premium $’000 Translation reserve $’000 Merger reserve $’000 — — — — — — — — — — 21,908 (1,946) 95 3,275 — — (3) — — — (7) (10) (10) — — — — — — — 16 — 6 — — — — — — — — — 1,247 — — — — — — 2011 $’000 448 Retained losses $’000 (5,054) (1,204) 73 174 — (6,011) (6,011) (7,981) — — — — — (2,560) — 813 At 31 December 2012 3,388 23,332 1,247 (15,739) Share capital and share premium On 16 May 2012 WANdisco plc acquired the entire share capital of WANdisco, Inc. As a result of this transaction, the shareholders in WANdisco, Inc. received shares in WANdisco plc in direct proportion to their original shareholdings in WANdisco, Inc., with one share issued for each share held. The shares in WANdisco plc have a nominal value of 10 pence. Therefore, from 16 May 2012, the share capital represents that of WANdisco plc and in the prior periods represents that of WANdisco, Inc. On 1 June 2012 the Company’s shares were admitted to AIM. In conjunction with the admission to AIM, the Company made an initial public offering (IPO) of 8,333,334 new 10 pence shares at a price of 180 pence per share. Costs relating directly to the new issue of shares have been deducted from the share premium account. Attributable IPO costs are allocated between share premium and the Income Statement in proportion to the number of shares traded on Admission. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the ﬁnancial statements of foreign operations. Merger reserve The acquisition by WANdisco plc of the entire share capital of WANdisco, Inc. has been accounted for as a reverse acquisition. Consequently the previously recognised book values and assets and liabilities have been retained and the consolidated ﬁnancial information for the period to 16 May 2012 has been presented as a continuation of the WANdisco business which was previously wholly owned by the WANdisco Inc. Group. The share capital for the period covered by these consolidated ﬁnancial statements and the comparative periods is stated at the nominal value of the shares issued pursuant to the above share arrangement. The difference between the nominal value of these shares and the nominal value of WANdisco, Inc. shares at the time of the acquisition has been transferred to the reverse acquisition reserve. WANdisco plc Annual report and accounts 2012 39 i F n a n c a i l s t a t e m e n t s Notes to the consolidated ﬁnancial statements continued 23. Share-based payments WANdisco plc operates share option plans for qualifying employees of the Group. Options in the plans are settled in equity in the Company and are normally subject to a vesting schedule but not conditional on any performance criteria being achieved. On 16 May 2012, in connection with the acquisition of WANdisco, Inc., options were granted to employees to replace options that they held over the shares of WANdisco, Inc. The terms of these replacement options and the number of shares under option are the same as the options that each employee previously held. The exercise price is equivalent to the exercise price for the WANdisco, Inc. shares translated at the exchange rate on the day the replacement options were issued. On 21 June 2012 and 7 December 2012 new options were granted to certain employees. The terms and conditions of the grants were as follows: Date of grant 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 21 June 2012 7 December 2012 Expected term (years) Exercisable between Commencement Lapse 1 5 6 7 7 7 8 8 8 9 9 9 9 9 9 9 10 10 10 10 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 16 May 2012 11 July 2012 22 July 2012 22 July 2012 1 August 2012 13 January 2013 13 January 2013 21 June 2015 7 December 2012 30 November 2012 9 November 2017 26 September 2018 5 January 2019 3 August 2019 3 August 2019 15 September 2020 7 October 2020 7 October 2020 14 September 2021 20 September 2021 20 September 2021 20 September 2021 14 September 2021 20 September 2021 20 September 2021 12 January 2022 30 January 2022 21 June 2022 7 December 2022 The following vesting schedule applies: 1. Fully vested as date of grant. Vesting schedule (see below) Outstanding at 31 December 2012 1 1 1 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 4 5 — — 3,500 — 1,146 7,500 50,000 200,000 31,782 2,000 15,167 1,000 2,000 85,000 129,500 2,000 458,000 913,000 64,875 715,000 Exercise price £0.24 $0.36 $0.36 $0.36 £0.24 $0.36 $0.36 $0.36 £0.45 $0.36 £0.46 £0.46 £0.46 $0.36 £0.46 £0.46 $0.36 £0.23 £2.00 £4.55 2. Partially vested at grant date; 1/48 of granted option shares vest monthly thereafter. 3. 25% of option vests on exercisable commencement date; 1/48 of granted option shares vest monthly thereafter. 4. Option vests on third anniversary of the date of grant. 5. Option vests 25% on ﬁrst anniversary of the vesting commencement date, with the balance vesting monthly thereafter until ﬁnal vesting date. AltoStor related share-based payments As part of the acquisition of AltoStor Inc. (see note 27) a total of 375,651 restricted shares have been issued to the former owners of the AltoStor Inc. business. These shares have been treated as contingent consideration and have been accounted for under IFRS 2 “Share-based Payments” rather than as part of the acquisition consideration under IFRS 3 ‘Business Combinations’. A share-based payment charge of $193,000 has been recognised in the year ended 31 December 2012 in relation to these restricted shares. 40 WANdisco plc Annual report and accounts 2012 23. Share-based payments continued The number and weighted average exercise price of share options (including previous options in WANdisco, Inc.) were as follows: Balance at the start of the period Granted (WANdisco, Inc.) Forfeited (WANdisco, Inc.) Lapsed (WANdisco, Inc.) Exercised (WANdisco, Inc.) Granted (WANdisco plc) Forfeited (WANdisco plc) Exercised (WANdisco plc) Balance at the end of the period Exercisable at the end of the period Vested at the end of the period Weighted average exercise price for: Shares granted (WANdisco, Inc.) Shares forfeited (WANdisco, Inc.) Options exercised (WANdisco, Inc.) Shares granted (WANdisco plc) Shares forfeited (WANdisco plc) Options exercised (WANdisco plc) Exercise price in the range: From To Weighted average contractual life remaining 2012 Number 6,909,912 3,084,000 (14,500) — (7,669,522) 811,525 (99,678) (340,267) 2011 Number 6,679,412 255,500 (17,188) — (7,812) — — — 2,681,470 6,909,912 201,397 214,927 6,909,912 6,332,547 2012 $ 0.36 0.58 0.36 6.71 1.26 0.38 0.36 7.19 2012 Years 9.1 2011 $ 0.72 0.45 0.40 — — — 0.40 0.72 2011 Years 6.3 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: Dividend yield Risk-free interest rate Stock price volatility Expected life (years) Weighted average fair value of options granted during the period: WANdisco, Inc. WANdisco plc 2012 0.00% 3.50% 40% 5 $0.15 $2.46 2011 0.00% 3.50% 40% 5 $0.29 n/a The dividend yield is based on the Company’s forecast dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from the average of the time between the date of grant and the date on which the options lapse. Expected volatility is based on the historical volatility of shares of listed companies with a similar proﬁle to the Company. The risk-free interest rate is based on the treasury bond rates for the expected life of the option. WANdisco plc Annual report and accounts 2012 41 i F n a n c a i l s t a t e m e n t s Notes to the consolidated ﬁnancial statements continued 24. Commitments Operating lease commitments The total amounts payable under non-cancellable operating leases are as follows: Land and buildings Within one year Between two and ﬁve years In ﬁve years or more Capital commitments 2012 $’000 340 781 — 1,121 2011 $’000 235 622 75 932 At 31 December 2012 the Group had no capital commitments (2011: $nil). 25. Contingent liabilities Given the nature of the business there are potentially claims which could arise against the Group. The Directors have made a provision for any known claims based on their assessment of the likely outcome. 26. Related parties and related party transactions Identity of related parties The Group has a related party relationship with its subsidiaries and with its Directors. Transactions with subsidiaries WANdisco plc recharges certain costs to its subsidiaries for provision of management services. In addition the costs incurred for software development in WANdisco International Limited have been recharged to WANdisco Inc. Transactions with Directors During the year ended 31 December 2012 certain Directors held positions in another private entity that resulted in them having control or signiﬁcant inﬂuence over the ﬁnancial or operating policies of that entity. The entity transacted with the Group in the reporting period. The aggregate value of transactions and outstanding balances relating to related party transactions between the Company and the related entity were as follows: Creditor at the start of the year Loan advances Loan repayments Loans waived Creditor at the end of the year 2012 $’000 535 — (535) — — 2011 $’000 633 112 (36) (174) 535 David Richards together with James Campigli, Mohammad Akhtar and Dr. Yeturu Aahlad exercised a number of stock options that they held in WANdisco, Inc. on 17 January 2012 and 16 February 2012. The exercise of 500,000 shares for David Richards and 450,000 shares for James Campigli was paid for in cash totalling $342,000. The exercise of a further 2,299,904 shares for David Richards, 1,346,851 shares for James Campigli, 2,179,047 shares for Dr Yeturu Aahlad and 737,262 shares for Mohammad Akhtar were funded by the issue of certain promissory notes to each of these individuals by WANdisco, Inc. The promissory notes were for a three-year period and had an interest rate of 0.21% per annum. They were secured by a pledge given by each of the individuals over the number of shares that were issued upon exercise of the options. The aggregate value of transactions and outstanding balances relating to the promissory notes were as follows: Balance at the start of the year Issue of promissory notes Interest Repayment of promissory notes 42 WANdisco plc Annual report and accounts 2012 2012 $’000 — 2,363 1 (2,364) — 2011 $’000 — — — — — 27. Acquisitions On 16 November 2012 the Group acquired 100% of the issued share capital of AltoStor Inc. for a total consideration of $2,298,444, of which $1,500,000 was paid in cash, $256,001 was issued in shares at the date of acquisition, and $542,443 is deferred share consideration. The fair value of the assets and liabilities of AltoStor, Inc. at the date of acquisition were: Property, plant and equipment Intangible assets Current assets Current liabilities Net assets acquired Consideration Satisﬁed by: Cash and cash equivalents Shares issued at date of acquisition Deferred consideration Net cash outﬂow on acquisition of subsidiary Consideration paid in cash Less: cash and cash equivalents acquired Net cash outﬂow $’000 — 2,298 — — 2,298 2,298 Fair value $'000 1,500 256 542 2,298 1,500 — 1,500 Number of shares 000's — 38 113 AltoStor is a small software development company that has deep expertise in the big data market and in particular Apache Hadoop development. The acquisition of AltoStor will enable the Group to launch products into the big data market quickly and efficiently. The following table shows the shares that were issued as part of the transaction and the fair value of those shares at the acquisition date: Share type Issued immediately Pledged shares Restricted shares Number Fair value 37,564 112,695 375,651 $256,001 $542,443 $2,560,008 The pledged shares have been treated as deferred consideration and will be released to the AltoStor founders four years and three months after the acquisition date, but contain no contingency clauses related to post acquisition performance criteria. The restricted shares have been treated as share-based payments as they have conditions attached relating to employment post acquisitions and have been accounted for under IFRS 2 “Share-based Payments”. The SBP charge will be recognised over the three-year vesting period of the shares. AltoStor Inc. did not generate any revenues or proﬁts or losses during the period from acquisition to 31 December 2012. Prior to acquisition AltoStor Inc. generated revenue of $60,000 and proﬁts of $70,000. 28. Post-balance sheet events There are no signiﬁcant or disclosable post-balance sheet events. WANdisco plc Annual report and accounts 2012 43 i F n a n c a i l s t a t e m e n t s Four year record 31 December Customer bookings Bookings growth Revenue Revenue growth Deferred revenue Growth in deferred revenue Net cash Operating loss Development costs and software amortised Depreciation Exceptional items EBITDA before exceptional costs Add back share-based payment charges Adjusted EBITDA before exceptional items Capitalised development costs 2009 $’000 2,310 n/a 2,476 n/a 3,437 n/a (163) (2,172) 308 18 6 (1,840) 325 (1,515) 602 2010 $’000 3,080 33% 2,984 21% 3,726 8% (554) (1,860) 597 49 204 (1,010) 182 (828) 1,103 2011 $’000 4,618 50% 3,878 30% 4,466 20% 74 (1,154) 980 46 205 77 73 150 1,207 2012 $’000 7,916 71% 6,031 56% 6,368 43% 14,545 (8,541) 2,018 52 2,656 (3,815) 813 (3,002) 2,912 Note: Customer bookings in 2009 excludes one unusually large booking of $3.25 million. 44 WANdisco plc Annual report and accounts 2012 Notice of ﬁrst Annual General Meeting Notice is given that the ﬁrst annual general meeting of WANdisco plc ("the Company") will be held at the offices of DLA Piper UK LLP, 1 St Paul's Place, Sheffield S1 2JX on 12 June 2013 at 12:00pm for the following purposes: To consider and, if thought ﬁt, to pass the following resolutions as ordinary resolutions: 1. That the Company's Annual Accounts and Directors' and Auditor’s Reports for the year ended 31 December 2012 be received and considered. 2. That KPMG LLP be re-appointed as auditor of the Company. 3. That the Directors be authorised to determine the remuneration of the auditor. 4. That in substitution for all existing authorities but without prejudice to any allotment, offer or agreement already made pursuant thereto, the Directors be and are hereby generally and unconditionally authorised pursuant to Article 2.3 of the Company's Articles of Association ("Articles") to exercise all powers of the Company to allot, grant options over or otherwise dispose of relevant securities (as that term is deﬁned in the Articles) in respect of up to an aggregate nominal amount of £685,070, provided that (unless previously revoked, varied or renewed) this authority shall expire on the earlier of the date which is 15 months after the date the resolution was passed and the conclusion of the next Annual General Meeting of the Company, save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power had not expired. To consider and, if thought ﬁt, to pass the following resolutions as special resolutions: 5. That, subject to the passing of resolution 4 and pursuant to Article 2.10 of the Articles, the Directors be and are hereby generally empowered to allot, grant options over or otherwise dispose of equity securities (within the meaning of the Articles) wholly for cash, pursuant to the general authority described in resolution 4 above, as if pre-emption rights did not apply to any such allotment, such power being limited to: 5.1 the allotment of equity securities in connection with a rights issue, open offer or pre-emptive offer to holders on the register of the ordinary shares in the capital of the Company ("Ordinary Shares") on a date ﬁxed by the Directors where the equity securities respectively attributable to the interests of all those shareholders are proportionate (as nearly as practicable) to their respective holdings on that date subject to any exclusions or other arrangements as the Directors may consider necessary or expedient in relation to fractional entitlements, legal or practical problems under the law of any territory or the regulations or requirements of any relevant regulatory authority or stock exchange in any territory; and 5.2 the allotment (other than pursuant to resolution 5.1 above) wholly for cash or otherwise wholly for cash or otherwise of Ordinary Shares up to an aggregate nominal amount of £205,521, provided that (unless previously revoked, varied or renewed), such authorities shall expire on the earlier of the date which is 15 months after the date the resolution was passed and the conclusion of the next Annual General Meeting of the Company, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power had not expired. i F n a n c a i l s t a t e m e n t s WANdisco plc Annual report and accounts 2012 45 Notice of ﬁrst Annual General Meeting continued 6. That the Directors be and are hereby authorised pursuant to Article 13 of the Articles and Article 57 of the Companies (Jersey) Law 1991, as amended ("the Law") to make market purchases of Ordinary Shares, subject to the following conditions: 6.1 the maximum number of Ordinary Shares authorised to be purchased may not be more than 15% of the issued share capital of the Company as at the date of this notice; 6.2 the minimum price (exclusive of expenses) which may be paid for an Ordinary Share is £0.001; and 6.3 the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall not exceed: 6.3.1 an amount equal to 105% of the average middle market quotation for Ordinary Shares taken from the London Stock Exchange plc Daily Official List for the ﬁve business days immediately preceding the date on which such shares are to be contracted to be purchased; and 6.3.2 the higher of the price of the last independent trade and the highest current independent bid on the London Stock Exchange plc Daily Official List at the time, such authority to expire on the earlier of the date which is 15 months after the date the resolution was passed and the conclusion of the next Annual General Meeting of the Company, unless such authority is varied, revoked or renewed prior to such date. To consider and, if thought ﬁt, to pass the following resolution as an ordinary resolution: 7. That, pursuant to Article 58A(1)(b) of the Law and Article 13 of the Articles, an Ordinary Share purchased pursuant to resolution 6 above may be held by the Company as treasury shares in accordance with Articles 58A and 58B of the Law. By order of the Board Nick Parker Company Secretary 25 April 2013 Registered in Jersey under the Companies (Jersey) Law 1991 with company number 110497 Registered office 47 Esplanade St Helier Jersey JE1 0BD 46 WANdisco plc Annual report and accounts 2012 Notes Entitlement to attend and vote 1. In accordance with Article 40(1) of the Companies (Uncertiﬁcated Securities) (Jersey) Order 1999, the right to vote at the meeting is determined by reference to the register of members. Only those shareholders registered in the register of members of the Company as at 6:00pm on 10 June 2013 (or, if the meeting is adjourned, 6:00pm on the date which is two working days before the date of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their name at that time. Changes in entries in the register of members after that time shall be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting. Proxies 2. A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend and to speak and vote at the meeting and on a poll, vote instead of him or her. A proxy need not be a shareholder of the Company. A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy appointment relates to or specifying a number which when taken together with the numbers of shares set out in the other proxy appointments is in excess of the number of shares held by the shareholder may result in the proxy appointment being invalid. A special resolution means a resolution passed by a majority of three-quarters of the holders who (being entitled to do so) vote in person, or by proxy, at a general meeting of the Company or at a separate meeting of a class of members of the Company. 3. A proxy may only be appointed in accordance with the procedures set out in Note 4 and the notes to the proxy form. The appointment of a proxy will not preclude a shareholder from attending and voting in person at the meeting. CREST members who wish to appoint a proxy or proxies or to give an instruction to a proxy (whether previously appointed or otherwise) by utilising the capital and CREST electronic proxy appointment service may do so in relation to the meeting, and any adjournment(s) thereof, by utilising the procedures described in the CREST Manual. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message must be transmitted via the CREST system so as to be received by Neville Registrars Limited (whose CREST ID is 7RA11) by the latest time for receipt of proxy appointments speciﬁed above. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Applications Host) from which the Company's agent is able to retrieve the message by enquiry to CREST in the manner prescribed. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in the Companies (Uncertiﬁcated Securities) (Jersey) Order 1999. A proxy does not need to be a member of the Company but must attend the Annual General Meeting to represent you. Details of how to appoint the Chairman of the Annual General Meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. You may appoint more than one proxy to attend on the same occasion. i F n a n c a i l s t a t e m e n t s WANdisco plc Annual report and accounts 2012 47 Notice of ﬁrst Annual General Meeting continued Notes continued Proxies continued 4. A form of proxy is enclosed. When appointing more than one proxy, complete a separate proxy form in relation to each appointment. Additional proxy forms may be obtained by the proxy form being photocopied. State clearly on each proxy form the number of shares in relation to which the proxy is appointed. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given in the proxy form, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks ﬁt in relation to any other matter which is put before the AGM. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the ﬁrst-named being the most senior). To be valid, a proxy form must be received by post or (during normal business hours only) by hand at the offices of the Company's registrar, Neville Registrars Limited, 18 Laurel Lane, Halesowen, West Midlands B63 3DA, no later than 12.00pm on 10 June 2013 (or, if the meeting is adjourned, no later than 48 hours (excluding any part of a day that is not a working day) before the time of any adjourned meeting). To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Any amended proxy appointment received after the time speciﬁed above will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Neville Registrars Limited. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard-copy notice clearly stating your intention to revoke your proxy appointment to Neville Registrars Limited. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by a duly authorised officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a notarially certiﬁed copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by Neville Registrars Limited no later than the commencement of the Annual General Meeting or adjourned meeting at which the vote is given or, in the case of a poll taken more than 48 hours after it is demanded, before the time appointed for taking the poll. If you attempt to revoke your proxy appointment but the revocation is received after the time speciﬁed then your proxy appointment will remain valid. Corporate representatives 5. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. A director, the secretary or other person authorised for the purpose by the secretary may require all or any such persons to produce a copy of the resolution of authorisation certiﬁed by an officer of the corporation before permitting him to exercise his powers. Method of voting 6. Voting on all resolutions will be decided on a show of hands unless, before or on declaration of the result of, a vote on the show of hands, or on the withdrawal of any other demand for a poll, a poll is duly demanded. Documents available for inspection 7. The following documents will be available for inspection during normal business hours at the registered office of the Company and at the Company's business address, Electric Works, Sheffield Digital Campus, Sheffield S1 2BJ, from the date of this notice until the time of the meeting. They will also be available for inspection at the place of the meeting from at least 15 minutes before the meeting until it ends: 7.1 copies of the service contracts of the Executive Directors; and 7.2 copies of the letters of appointment of the Non-executive Directors. 48 WANdisco plc Annual report and accounts 2012 Secretary and advisers Bankers Barclays Bank PLC St Paul’s Place 121 Norfolk Street Sheffield S1 2JW Lloyds Banking Group Bank plc 14 Church Street Sheffield S1 1HP Registrars Neville Registrars Limited 18 Laurel Lane Halesowen West Midlands B63 3DA T. 0121 585 1131 Secretary Nick Parker UK office Electric Works Sheffield Digital Campus Sheffield S1 2BJ US office 5000 Executive Parkway Suite 270 San Ramon CA 94583 USA Registered office 47 Esplanade St. Helier Jersey JE1 0BD Nominated adviser and broker Panmure Gordon & Co One New Change London EC4M 9AF Auditor KPMG LLP 1 The Embankment Neville Street Leeds LS1 4DW Legal advisers DLA Piper UK LLP 1 St Paul’s Place Sheffield S1 2JX Carey Olsen 47 Esplanade St. Helier Jersey JE1 0BD WANdisco plc Electric Works Sheffield Digital Campus Sheffield S1 2BJ W A N d i s c o p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 2

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