Final Results
Instem plc
("Instem" or the "Group")
Audited Results for the Year Ended 31 December 2019
Instem (AIM: INS.L), a leading provider of IT solutions to the global early development healthcare market, announces its results for the year ended 31 December 2019.
Financial Highlights:
· Revenues increased 13% to £25.7m (2018: £22.7m)
o Software as a Service (SaaS) revenues increased 16% to £6.4m (2018: £5.5m)
o Recurring revenues (annual support and SaaS) increased 9% to £14.9m (2018: £13.7m)
· Adjusted EBITDA* of £4.9m (2018: £4.1m)
· Reported loss before tax of £0.9m (2018: profit of £1.7m), after **non-cash goodwill and intangible asset impairment of £3.2m (2018: £nil)
· Adjusted profit before tax*** of £3.2m (2018: £2.8m)
· Fully diluted loss per share of (5.7p) (2018: 8.7p earnings per share)
· Adjusted*** fully diluted earnings per share of 18.4p (2018: 15.5p)
· Cash balance as at 31 December 2019 of £6.0m (2018: £3.6m)
*Earnings before interest, tax, depreciation, amortisation , impairment of goodwill and capitalised development costs and non-recurring items. 2019 reflects the adoption of IFRS16.
** This is associated with our Clinical business and covered in more detail in the Strategic Report.
***After adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development costs and amortisation of intangibles on acquisitions. Profit is adjusted in this way to provide a clearer measure of underlying operating performance.
Operational Highlights:
· Continued transition to SaaS deployment, increasing recurring revenue
· Rapidly growing informatics service, automating a key industry process of "Target Safety Assessment"
· Earnings enhancing acquisition of Leadscope Inc for up to $4.7m, extending our artificial intelligence technology offering and opening up cross-selling and upselling opportunities
· FDA's SEND initiative continued to underpin strong technology enabled outsourced services revenue growth
Phil Reason, CEO of Instem, commented: " We are delighted with our performance during the period with our proven business model generating improvements across all of our key performance metrics. We have an established base from which to grow, both organically and via acquisition, and have established long-term relationships with our blue-chip client base. Importantly, we are well positioned to add new clients and generate increasing revenues from existing clients while our transition to a SaaS model increases visibility.
"Increased revenue predictability and high retention rates provide a strong foundation from which the business can grow as it builds on the momentum achieved during 2019. While some future uncertainty inevitably remains as a consequence of the Covid-19 pandemic, the majority of our revenue comes from clients whose laboratories are regarded as "essential businesses" and therefore remain active, with many working on COVID-19 related vaccines and therapies. Consequently, we have remained very busy, have good visibility over a strong H1 2020 performance and continue to have confidence in the longer term outlook for the business, supported by a strong cash balance at the end of April 2020 of £8.3m. Our staff are currently working effectively from home and are highly motivated by our work which is directly contributing to COVID-19 research and development."
For further information, please contact:
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Instem plc |
Via Walbrook PR |
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Phil Reason, CEO |
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Nigel Goldsmith, CFO |
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N+1 Singer (Nominated Adviser & Broker) |
+44 (0) 20 7496 3000 |
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Peter Steel/Alex Bond |
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Rachel Hayes |
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Walbrook Financial PR |
+44 (0) 20 7933 8780 |
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Nick Rome |
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Tom Cooper |
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Nicholas Johnson |
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About Instem
Instem is a leading provider of IT solutions & services to the life sciences market delivering compelling solutions for Study Management and Data Collection; Regulatory Solutions for Submissions and Compliance; and Informatics-based Insight Generation.
Instem solutions are in use by over 500 customers worldwide, including all the largest 25 pharmaceutical companies, enabling clients to bring life enhancing products to market faster. Instem's portfolio of software solutions increases client productivity by automating study-related processes while offering the unique ability to generate new knowledge through the extraction and harmonisation of actionable scientific information.
Instem products and services now address aspects of the entire drug development value chain, from discovery through to market launch. Management estimate that over 50% of all drugs on the market have been through some part of Instem's platform at some stage of their development. To learn more about Instem solutions and its mission, please visit instem.com.
Chairman's Statement
Our performance for the full year builds on the momentum achieved during the first half, with the Company producing strong results across all business areas whilst strengthening its overall offering via the acquisition of Leadscope.
We are delighted to report a 13% increase in total revenues year-on-year. Our strategic move towards high quality SaaS revenues contributed to a 9% growth in recurring revenues for the period, providing increased levels of certainty and visibility. Importantly, the proportional reduction in perpetual licence revenues makes the business less susceptible to the unpredictable nature of relying on significant contract wins to meet forecast expectations.
The cash balance at the year-end was £6.0m (2018: £3.6m).
Firm Foundations
Given the successful and ongoing transition to SaaS-based revenues the Company is benefiting from increasing levels of predictability whereby revenues are recognised on a monthly basis over the subscription period. This form of contract is proving attractive to both existing and new clients. The Company has proven its ability to manage this strategic change in revenue mix with SaaS-based orders and revenue growth exceeding the Board's expectations during the period.
The combination of organic and acquisitive growth during the period has resulted in a further diversification of revenue streams while also providing opportunities for the Company to cross-sell and upsell to existing clients. November's acquisition of Leadscope strengthened the Company's Artificial Intelligence ("AI") offering. We see the AI sector as an increasingly important part of our business and are extremely excited by the growth potential, albeit from a low base.
Strategic Direction
The business has a number of key growth drivers and we believe that the momentum achieved during the period provides validation of its strategic potential. We were delighted to have made notable progress on a number of fronts during the period, namely:
· Continued growth in SaaS-based revenues both through new business wins and via the ongoing conversion of existing clients. As such, SaaS-based revenue increased 16% to £6.4m during the period;
· The expansion of "technology enabled outsourced services", where 2019 revenue was £5.6m (2018: £3.3m):
o Our market leading offering for the SEND services business continued to perform well during the period.
o We strengthened our AI services with increased demand for Target Safety Assessment ("TSA") driving revenue growth and the acquisition of Leadscope broadening our offering. This has provided a new entry point for the Company, consequently strengthening growth opportunities within our existing client base whilst at the same time increasing our attraction to new clients.
We have made a non-cash impairment provision of £3.2m against goodwill and other intangible assets in our Alphadas early phase clinical data collection business, which is commented on in more detail in the Strategic Report. The proportion of revenue associated with the clinical business is immaterial in the context of the Group as a whole.
In light of COVID-19, the Instem Board decided in March 2020 that until any material business risk from the pandemic is behind us, our 2020 objectives would be moderated so that we can successfully navigate the crisis. We will strive to ensure that we retain a global, leading and enthusiastic set of employees, clients and investors,
who will enable us to capitalise on opportunities as the world recovers. Consequently, our revised focus will be to:
· Ensure our staff and their families stay safe, engaged and effective;
· Provide the products and services that our clients need to continue their important work; and
· Take appropriate action where necessary to safeguard our strong and stable financial position.
Notwithstanding COVID-19, our non-organic growth ambitions remain intact; we continue to evaluate acquisition opportunities and our strategy to consolidate our fragmented industry is a key focus. We will maintain our rigorous approach to appraisal and diligence of any acquisition targets. I remain confident that our objective to acquire complementary technologies or enter adjacent markets will be successfully executed, particularly given our balance sheet strength.
I am pleased to report that our staff have safely and effectively transitioned to home working, our clients have, on the whole, continued to operate and Instem is increasingly playing an important role in contributing directly to their COVID-19 related research and development activities.
I am extremely satisfied with the Company's performance during the period as we continued to grow the business organically whilst providing an increasingly stable revenue model with improved quality of earnings.
So far in 2020, business has been strong, we anticipate a robust H1 2020 performance and we are cautiously optimistic that this will continue through the remainder of the year. In summary we have a highly scalable platform and are excited by both organic and acquisitive growth opportunities.
D Gare
Chairman
3 June 2020
Chief Executive's Report
Strategic Development
During the period under review Instem generated positive returns across the Group with key momentum drivers being:
· increased levels of recurring revenues;
· the ongoing transition to high-quality subscription-based SaaS revenues;
· continued expansion of 'technology enabled outsourced services';
· growing regulatory-backed opportunities;
· strong organic growth; and
· further broadening of our product portfolio via the earnings enhancing acquisition of Leadscope.
Importantly, the Company delivered increased profit whilst investing in its products and personnel. This provided capacity and scope to increase the Company's market share at the same time as increasing cross-selling and upselling opportunities within the existing client base.
There was a 78% increase in new business SaaS subscription order value over the prior year, with the proportion of SaaS subscription orders compared with perpetual software licenses increasing from 33% in 2018 to 64% in 2019. Some of this increased order value benefited SaaS revenue in 2019 but the first full year impact will be realised in 2020.
COVID-19
With both staff and customers based in China, some directly in Wuhan, Instem's Business Continuity team was engaged at the early stages of the pandemic. Our first priority was to address personal safety and to then ensure business continuity for both Instem and our clients. Our Business Continuity team has continued to spearhead our response as the crisis has escalated and spread worldwide.
Like most businesses, we have been closely following and implementing the advice of agencies, such as the World Health Organization and US Centers for Disease Control & Prevention, and quickly introduced international and domestic travel bans, as well as policies to increase hygiene and social distancing. We required staff with even mild symptoms to stay at, or work from home and thus far our operations have not been materially impacted.
While these measures have had some impact on client-related site work, we have worked collaboratively with our customers to find ways to complete much of this work remotely. In some cases, this is increasing efficiency as we save on both the time and expense of international travel and we hope to see some enduring benefits as we, and our clients, realise how much can be achieved in this way.
Instem is fortunate to have invested heavily over the last 5 years in technology that supports our widely dispersed workforce and the many staff that already work entirely, or frequently, from home. Our regulatory compliant framework, certification to quality standard ISO 9001 and information security management standard ISO 27001, all require us to have a risk management and business continuity mindset embedded in the organisation. We also reflect these requirements with the operational partners on whom we rely, and they have confirmed their ability to continue to support Instem and our clients during this crisis.
We have quickly, but carefully, moved to a position where all of our staff are working from home, keeping ahead of those locations where governmental mandatory "work from home" and/or "shelter at home" is now in place. As a business supporting critical, life enhancing/sustaining scientific research and development such as the activities we are now routinely undertaking to produce SEND submissions for COVID-19 related drugs and vaccines, we believe that we will likely retain the right to attend our offices; however our personnel are only doing so in exceptional circumstances. We are starting to see some limited domestic travel to sites in China, to satisfy prior client commitments, as business there returns to a "new normal".
While most of our staff are working equally efficiently remotely, we are addressing situations where staff need to balance home working with caring for children at home or other dependents, and also occasions where external network connectivity is challenged as entire regions are restricted to home working and schooling.
The immediate disruption to client operations, as they determined how to adopt safe working practices for their essential laboratory staff and transitioned other staff to home working, seems to be largely behind us. Some new business opportunities have been delayed, principally those in the early phase clinical and academic sectors, although most 2020 opportunities remain within the year and, to date, no pipeline opportunities have been cancelled altogether by clients.
While we cannot be certain what the impact will be of a sustained period of global business disruption, at this point, we believe that Instem and the majority of our clients are well positioned to successfully manage their way through it.
One particularly beneficial impact of the extensive work-from-home restrictions has been a significant improvement in the ability for our boutique corporate finance partner to contact principals in potential acquisition targets, as part of their target identification and qualification assignment. It has also facilitated follow-on meetings for the Instem team with those businesses deemed interesting, with ongoing dialogue across a number of potentially interesting opportunities. Surveys of strategic and financial buyers are suggesting that acquisition valuation multiples have reduced as a consequence of COVID-19, which may help unlock some opportunities for Instem.
Market Review
The market backdrop continues to be favourable for the Company given global population growth and life expectancy underpinning increased demand for successful innovation in life sciences. Increasing amounts are being invested in the biotech industry with the pharmaceuticals sector investing heavily in drug development.
In the pharmaceutical industry, which represents the largest proportion of Instem's revenue, we refer again to the Pharma R&D Annual Review, the 2020 version of which was released by Pharma Intelligence in March this year. This report shows that the industry grew strongly in the last 12 months with a 9.6% increase (2019: 6%) in the total number of drugs in the regulatory stages of global R&D, continuing a multi-year growth trend that, subject to the potential impact of COVID-19, sees no sign of abating. Most relevant to Instem is the 13.2% increase (2019: 6%) in the number of drugs at the pre-clinical (or non-clinical) phase of drug development, that accounts for much of our business.
With Instem's suite of products providing faster and more cost-effective routes to market by enabling clients to analyse, report and submit data to regulatory agencies, the Company continues to benefit from growing demand for its products and services. The regulatory-backed Standard for the Exchange of Non-clinical Data ("SEND") market is estimated to be worth approximately $50m in 2021 and Instem remains well placed to continue to take a meaningful share of this growing market with evolving regulation set to underpin the longer-term opportunity.
November's acquisition of Leadscope provides further regulatory-backed growth opportunities given that a number of the world's major regulatory agencies, including the FDA and the European Medicines Agency, adopted a standard known as ICH M7 (R1) for the assessment and control of DNA reactive (mutagenic) impurities in pharmaceuticals to limit potential carcinogenic risk.
Importantly, Leadscope is especially well-placed for growth having worked extensively through research collaboration agreements ("RCAs") with the FDA, and in collaboration with other agencies, to develop both predictive and expert review solutions for ICH M7 (R1) and has licensed the software widely in the industry.
Study Management
Instem's focus here is on automating processes associated with pre-clinical and early phase clinical study planning, data collection, analysis and reporting. The move of long-standing clients to SaaS deployment continued during the period while the addition of a number of new clients utilising the SaaS model contributed strongly to the changing revenue mix with 28% of the Company's study management business now aligned to this revenue model. Importantly, the Company continues to work closely with its clients as part of its carefully managed programme to transfer all clients to a SaaS-dominated deployment model.
This area includes Instem's market leading Provantis product suite, which enjoyed record new client wins with thirteen additional customers, nine of whom chose SaaS deployment. Once again, growth was particularly strong in the Asia-Pacific region, with nine new Provantis clients.
Informatics
Instem utilises a range of bioinformatics tools to extract, analyse and compile actionable information from across the R&D spectrum. The growing use of AI, in particular across the Target Safety Assessment ("TSA") process, has driven the majority of growth in this area.
Revenue from the Company's informatics services grew rapidly during the period with a 101% increase compared with the prior period.
Added to the strong organic growth, Instem completed the earnings enhancing acquisition of Leadscope Inc in November 2019, further extending its product portfolio and cross-selling opportunities. Provided on a subscription or pay-per-use basis, Leadscope's software employs sophisticated artificial intelligence and machine-learning algorithms to predict potential safety outcomes and to enable scientists to perform expert reviews. Deployed Software-as-a-Service, or on client premises, Leadscope's software allows clients to extract knowledge from both public data and their own proprietary sources.
Importantly, Informatics brings Instem into contact with customers at an early stage in the drug development process, helping to cement client relationships through its range of solutions.
Regulatory Solutions
The Company continued to benefit from FDA-driven demand for SEND conversion work, with the industry focused on addressing both the study backlog and growing current study volume. Outsourced services, whereby Instem leverages its technology to deliver fully compliant SEND packages ready for electronic regulatory submission, generated strong repeat business.
With over fifty revenue generating SEND services staff, Instem has by far the largest team in the industry focused purely on SEND outsourcing. The team comprises several of the world's leading SEND experts, who continue to contribute to the industry consortium developing and maintaining the standard. Instem has highly qualified SEND staff in Europe and North America, close to the largest client concentrations, but with around two thirds of the team in Instem's Pune, India office, which in aggregate provides a very cost effective and scalable approach. This has enabled Instem to grow SEND outsourced services revenue to £4.5m in 2019 (2018: £2.8m).
Industry consolidation by the two dominant non-clinical contract research organisations ("CROs"), Charles River and Covance, who each has a strategy to undertake SEND production in-house, is expected to moderate growth in demand for SEND Services for regulatory submission. However, with a significant volume of SEND data sets now in existence, the opportunity to use SEND for data exploitation is growing and we expect that area of Instem's solutions suite to benefit.
Impairment of goodwill and other intangible assets
Although our Alphadas early phase clinical data collection business performed well for the first few years following the May 2013 acquisition of Logos Technologies "Logos", that sector of the pharmaceutical development market has been going through considerable structural change, impacting many of the contract research organisations that represent the majority of the market opportunity. Consequently, little new data collection software business has been placed in this sector over the last 18 months. Furthermore, it appears the early phase clinical CROs have been negatively impacted by COVID-19. We envisage further slippage in the pipeline of new opportunities, with no certainty regarding the timing of new business awards.
We have therefore made a combined £3.2m impairment provision (2018: £nil) to the goodwill arising on the Logos acquisition (£2.5m) and to other intangible assets related to our Alphadas business (£0.7m). We remain committed to supporting our existing Alphadas clients and to securing new business as suitable opportunities arise. There is no impact from this to any other area of our business, where end user markets remain robust.
Financial Review
Key Performance Indicators (KPIs)
The directors review monthly revenue and operating costs to ensure that sufficient cash resources are available for the working capital requirements of the Group. Primary KPIs at the year end were:
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12 mths to 31 Dec 2019 £000 |
12 mths to 31 Dec 2018 £000 |
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Total Revenue
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25,717 |
22,705 |
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Recurring revenue |
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14,862 |
13,669 |
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Recurring revenue as a percentage of total revenue |
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58% |
60% |
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Adjusted EBITDA |
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4,864 |
4,052 |
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Cash and cash equivalents |
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5,957 |
3,572 |
In addition, non-financial KPIs are periodically reviewed and assessed, including customer retention and staff retention rates.
Instem's revenue model consists of perpetual licence income with annual support and maintenance contracts, professional fees, technology enabled outsourced services fees and SaaS subscriptions.
Total revenues increased by 13% to £25.7m (2018: £22.7m). Recurring revenue, derived from support & maintenance contracts and SaaS subscriptions, increased during the year by 9% to £14.9m (2018: £13.7m). Recurring revenue as a percentage of total revenue was 58% (2018: 60%). In absolute terms recurring revenue increased over the prior year by £1.2m but its percentage of the total decreased due to the growth in technology enabled outsourced services, which is currently all shown as non-recurring. Revenue from technology enabled outsourced services increased to £5.6m (2018: £3.3m). Operating expenses increased by 12% in the period reflecting the ongoing investment in operational teams. The revenue mix also attracted higher direct costs linked to the higher revenue.
Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and capitalised development and non-recurring items (Adjusted EBITDA) increased by 20% to £4.9m (2018: £4.1m). For this measure of earnings, the margin as a percentage of revenue increased in the year to 18.9% from 17.8% in 2018.
Non-recurring costs in the year included £0.2m of acquisition costs linked to the purchase of Leadscope Inc. and legal costs associated with historical contract disputes of £0.1m (2018: £0.05m).
The reported loss before tax for the year was £0.9m (2018: profit of £1.7m). Adjusted profit before tax (i.e. adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development and amortisation of intangibles on acquisitions) was £3.2m (2018: £2.8m).
The Group continues to maintain its investment in its product portfolio. Development costs incurred during the year were £3.1m (2018: £3.1m), of which £1.3m (2018: £1.5m) was capitalised. The Group claimed research and development tax credits in respect of the prior year 2018 of £0.6m (2018 in respect of 2017: £0.5m).
The Group acquired Leadscope Inc on 15 November 2019. The acquisition extends the Group's currently small but rapidly growing Informatics business. The total consideration payable will be up to $4.7m, satisfied by a combination of cash and new ordinary shares in Instem plc. The consideration comprises an initial $3.35m, $0.1m working capital adjustment payable in Q1 2020, $0.75m of deferred consideration payable in two equal instalments in November 2020 and November 2021 and up to a further $0.5m, contingent upon the future financial performance of Leadscope, which would be payable in H1 2022. The initial consideration was satisfied in 2019 by $2.25m in cash and $1.1m in new ordinary shares of 10 pence each equating to 231,966 shares. The cash was funded from existing resources.
In 2019 the Group has adopted new guidance for the recognition of leases (note 7). The new standard has been applied using the modified retrospective approach, with the cumulative effect of adoption as at 1 January 2019 being recognised as a single adjustment to retained earnings. IFRS16 removes the operating and finance lease classification in IAS17 Leases and replaces them with the concept of right of use assets and associated financial liabilities. This change results in the recognition of a liability on the statement of financial position for all leases which convey a right to use the asset for the period of the contract. The lease liability reflects the present value of the future rental payments and interest, discounted using either the effective interest rate or the incremental borrowing rate of the entity. In 2019 the right of use assets recognised were primarily the leases for the Company's global offices.
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
· Right of use assets - increase by £3.002m
· Lease liabilities - increase by £3.042m
The net impact on retained earnings on 1 January 2019 was a decrease of £0.068m. Prior periods have not been restated. For the year ended 31 December 2019, the impact on adjusted EBITDA of adopting IFRS16 is an increase of £0.7m. Amortisation of right of use assets in the period amounted to £0.6m, with an interest expense of £0.1m charged to finance costs.
Basic and diluted earnings per share calculated on an adjusted basis were 19.3p and 18.4p respectively (2018: 16.4p basic and 15.5p diluted). The reported basic and diluted earnings per share were (5.7p) and (5.7p) respectively (2018: 9.2p basic and 8.7p diluted). The diluted loss per share in 2019 is the same as basic loss per share as losses have an anti-dilutive effect.
The period saw strong net cash generated from operating activities of £5.4m (2018: £2.2m), largely due to cash inflow from key contracts, outsourced services, working capital management and a £0.5m R&D tax credit claimed in respect of 2017. Cash balance increased to £6.0m at 31 December 2019, compared with £3.6m as at 31 December 2018, after making the initial cash consideration for the acquisition of Leadscope Inc from existing resources, net of cash acquired, of £1.3m in the period.
The Group's legacy defined benefit pension scheme has remained closed to new members since October 2001. The most recent comprehensive actuarial valuation was carried out at 5 April 2017 and the next triennial valuation will be calculated as at 5 April 2020 . At 31 December 2019, the pension deficit decreased by £0.4m to £1.8m (2018: £2.2m). The future agreed cash contributions will remain around an annual level of £0.5m payable through to October 2024, by when the funding liability is scheduled to be eliminated. The deficit at the year-end of £1.8m (2018: £2.2m) is represented by the fair value of assets of £12.0m (2018: £10.4m) and the present value of funded obligations of £13.8m (2018: £12.6m), after applying a discount rate of 2.20% (2018: 3.00%).
The table below provides the data for certain performance measures mentioned above:
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2019 £000 |
2018 £000 |
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Annual support fees |
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8,418 |
8,160 |
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SaaS subscription and support fees |
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6,444 |
5,509 |
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Recurring revenue |
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14,862 |
13,669 |
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Licence fees |
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3,501 |
3,491 |
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Professional services |
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1,773 |
2,204 |
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Technology enabled outsourced services |
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5,581 |
3,341 |
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Total revenue |
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25,717 |
22,705 |
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2019 |
2018 |
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£000 |
£000 |
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EBITDA |
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4,562 |
3,513 |
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Non recurring costs (see note 3) |
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302 |
539 |
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Adjusted EBITDA |
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4,864 |
4,052 |
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(Loss)/Profit before tax |
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(901) |
1,677 |
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Amortisation of intangibles arising on acquisition |
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523 |
788 |
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Impairment of goodwill and capitalised development |
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3,175 |
- |
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Non recurring costs (see note 3) |
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302 |
539 |
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Intercompany foreign exchange loss/(gain) |
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61 |
(186) |
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**Adjusted profit before tax |
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3,160 |
2,818 |
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Tax |
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(22) |
(207) |
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Adjusted profit after tax |
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3,138 |
2,611 |
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Weighted average number of shares (000's)
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17,053 |
16,849 |
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Adjusted diluted earnings per share
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18.4p |
15.5p |
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Cash at bank |
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14,955 |
12,570 |
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Bank overdraft |
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(8,998) |
(8,998) |
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Cash balance |
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5,957 |
3,572 |
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* Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and capitalised development and non-recurring costs.
**After adjusting for the effect of foreign currency exchange on the revaluation of inter-company balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development and amortisation of intangibles on acquisitions.
Update on historical contract dispute
An historical contractual licence dispute, which does not affect the ongoing operations of the Group, is in the process of being heard by the German courts. The initial hearing was held in early 2019. An expert witness was appointed by the court to review the case and report their findings. That report was submitted to the court in January 2020 and the Company has commented in response. The Company is defending the action and strongly believes that the claim should be dismissed. Notwithstanding this, the cost provision made in 2017 has been maintained in the 2019 financial statements. Further announcements will be made as and when appropriate. To date all legal expenses have been expensed.
Principal risks and uncertainties
The directors consider that the global pharmaceutical market is likely to continue to provide growth opportunities for the business. The combination of the high level of annual support renewals and low levels of customer attrition provides revenue visibility to underpin the Group strategy on product and market development.
The Group seeks to mitigate exposure to all forms of risk through a combination of regular performance review and a comprehensive insurance programme.
v Foreign currency risk
The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the functional currency and on the translation of the statement of financial position and statement of comprehensive income of foreign operations into sterling. The main currency giving rise to this risk is US dollars. The Group has both cash inflows and outflows in this currency that create a natural hedge. The Group also generates material cash reserves through its Chinese subsidiary that are not readily available to the UK Group at short notice and, as such, the Group has to maintain sufficient working capital headroom to accommodate any delays in repatriating cash from China . In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group's cash inflows and outflows in a foreign currency. The Group continually assesses the most appropriate approach to managing its currency exposure in line with the overall goal of achieving predictable earnings growth. Over the longer term, changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. A 10% decrease in the average value of Sterling against the US dollar would have resulted in an increase in the Group's profit before tax by approximately £0.1m (2018: £0.1m).
v Credit risk
Management aims to minimise the risk of credit losses.
The Group's financial assets are bank balances and cash and trade and other receivables, which represent the Group's maximum exposure to credit risk in relation to financial assets.
The Group's credit risk is primarily attributable to its trade receivables and the Group has policies in place to ensure that sales of products and services are made to customers with appropriate creditworthiness. The Group generates external revenue from no customers which individually amount to more than 10% of the Group revenue. At the 2019 year end the Group had a maximum credit risk exposure of £6.9m (2018: £7.8m).
The amounts presented in the statement of financial position are net of impairment provisions.
The Group's exposure to losses from defaults on trade receivables is reduced due to contractual terms which require installation, training, annual licensing and support fees to be invoiced and paid annually in advance.
v Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial commitments as they fall due. The Group manages liquidity risk through regular cash flow forecasting and monitoring through management review, including a regular review of working capital and costs. The Group's principal costs are staff related, that are primarily salaries and related benefits paid monthly. The Group monitors daily its available headroom under its borrowing facilities. At 31 December 2019, its £0.5m net overdraft bank facility was undrawn (2018: £0.5m facility undrawn). This facility is provided to the Group by the Group's UK based bankers, with no other debt facilities in place in any other global territories. The Group is focused on repatriating as much cash to the UK as possible to minimise the use of the facility, whilst ensuring there is sufficient working capital available in each territory in which it operates. The Group had positive cash reserves of £6.0m at the 2019 year end, in addition to the £0.5m undrawn working capital facility, although £1.9m of the cash was held in bank accounts in China, where it has been traditionally harder to repatriate funds quickly. There are no long term restrictions on the transfer of funds from the Group bank accounts in China.
v Interest rate risk
The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported earnings. The Group's bank facility does not allow the US Dollar cash balances to generate interest therefore the Group transfers funds from the US dollar account into the sterling account. Currency transfers have been utilised to maximise the interest gains whilst minimising foreign exchange risks. As at 31 December 2019, the indications are that the UK bank base interest rate will not materially differ over the next 12 months. On the basis of the net cash position at 31 December 2019 and assuming no other changes occur (such as material changes in currency exchange rates) the change in interest rates will not have a material impact on net interest income/(expense).
v Cyber risk
The Group handles much data electronically and is therefore extremely aware of the risks that a cyber-attack could have on its business. It has robust standards in place for establishing and maintaining systems and processes to ensure that the highest standards of data protection are in place. This also applies to any third party who is handling data on behalf of the Group and its customers, such as third-party hosting providers.
v Technology risk
Due to the evolving nature of technology platforms there is a risk of obsolescence. The Group monitors this risk and develops strategic development plans to ensure it remains compliant with technological advances.
v Acquisition risk
Any corporate acquisition has associated integration risk. In respect of every acquisition the Group creates an integration plan with assigned responsibilities to a team led by an appointed project manager for delivering against an agreed timetable. This is monitored closely throughout the integration process and any deviations against the plan are flagged and actioned accordingly.
v Recruitment and retention risk
As its people are the Group's major asset, it is critical to ensure that it recruits the best staff possible and that these individuals are rewarded and developed appropriately. The Group has a global HR team that manages the process of ensuring the staff benefit and reward packages are incentivising for both recruitment and retention purposes. This includes benchmarking against peers and industry norms and considering staff feedback through regular performance review. During 2020 the Group will be implementing an all-staff share scheme for the first time.
Brexit
The UK withdrew from the EU on 31 January 2020 and has entered a transition period until the end of 2020. Trade negotiations with the EU are planned for 2020 and whilst the outcome remains uncertain, there is always the associated risk of adverse implications for the business, including the impact on exchange rate fluctuations. However, the Group has to its knowledge experienced no negative impact on its business to date and does not expect to do so in the future. Instem operates in a global market with a multinational customer base and its revenues and costs spread around the globe without over reliance on Europe or exposure to it. The 2016 acquisition of Notocord in France provides the Group with a presence in Europe that we expect to help mitigate any impact that might arise from the Brexit outcome. The Group will continue to monitor the progress of the UK/EU trade negotiations and any potential implications for the business.
Coronavirus (COVID-19)
Like most businesses worldwide the Group is having to deal with the impact of COVID-19, with its primary concern being for the safety and wellbeing of its staff and their families. The Group has the benefit of operating in a sector where significant worldwide focus is on identifying vaccines and therapies for COVID-19, with a number of our customers directly involved in this work. While the Group expects some disruption to demand for its products and services there is also expected to be some increases in customer demand. Whilst approximately half of the Group's revenues are generated from North America, the remaining revenues are spread across the world and therefore there is no dependence on one territory thus spreading the risk. The Group benefits from having no supply chain or distribution network to rely on. The Group has the added benefit of having systems and processes established to enable its workforce to work effectively from home across all of its sites worldwide.
The Group continues to follow and adhere to the advice of the government authorities in each territory in which its staff are based. The situation is being closely monitored with all appropriate and proportionate measures taken wherever possible.
Outlook
We are delighted with our performance during the period, with our proven business model generating improvements across all of our key performance metrics. We have an established base from which to grow, both organically and via acquisition, and have established long-term relationships with our blue-chip client base. Importantly, we are well positioned to add new clients and generate increasing revenues from existing clients while our transition to a SaaS model increases visibility.
Increased revenue predictability and high retention rates provide a strong foundation from which the business can grow as it builds on the momentum achieved during 2019. While some future uncertainty inevitably remains, the majority of our revenue comes from clients whose laboratories are regarded as "essential businesses" and therefore remain active, with many working on COVID-19 related vaccines and therapies.
Consequently, we have remained very busy, have good visibility over a strong H1 2020 performance and continue to have confidence in the longer term outlook for the business, supported by a strong cash balance at the end of April 2020 of £8.3m. Our staff are currently working effectively from home and are highly motivated by the work that we are directly contributing to COVID-19 research and development.
Phil Reason
Chief Executive
3 June 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
|
Note | Audited Year ended 31 December 2019 £000 | Audited Year ended 31 December 2018 £000 |
|
|
|
|
REVENUE | 2 | 25,717 | 22,705 |
Employee benefits expense |
| (13,609) | (12,436) |
Other expenses |
| (7,244) | (6,217) |
|
|
|
|
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND NON-RECURRING COSTS (ADJUSTED EBITDA)
|
|
4,864 |
4,052 |
Depreciation |
| (155) | (144) |
Amortisation of intangibles arising on acquisition |
| (523) | (788) |
Amortisation of internally generated intangibles |
| (755) | (738) |
Amortisation of right of use assets |
| (607) | - |
Impairment of goodwill and capitalised development |
| (3,175) | - |
|
|
|
|
(LOSS)/PROFIT BEFORE NON-RECURRING COSTS |
| (351) | 2,382 |
Non-recurring costs | 3 | (302) | (539) |
|
|
|
|
(LOSS)/PROFIT AFTER NON-RECURRING COSTS |
| (653) | 1,843 |
|
|
|
|
Finance income | 4 | 7 | 33 |
Finance costs | 5 | (255) | (199) |
|
|
|
|
(LOSS)/PROFIT BEFORE TAXATION |
| (901) | 1,677 |
Taxation | 6 | (22) | (207) |
|
|
|
|
(LOSS)/PROFIT FOR THE YEAR |
| (923) | 1,470 |
|
|
|
|
OTHER COMPREHENSIVE INCOME/(EXPENSE) |
|
|
|
Items that will not be reclassified to profit and loss account: |
|
|
|
Actuarial gain on retirement benefit obligations |
| 30 | 1,300 |
Deferred tax on actuarial gain |
| (6) | (221) |
|
|
|
|
|
| 24 | 1,079 |
Items that may be reclassified to profit and loss account: |
|
|
|
Exchange differences on translating foreign operations |
| (208) | (193) |
|
| _______ | _______ |
OTHER COMPREHENSIVE (EXPENSE)/INCOME FOR THE YEAR |
|
(184) |
886 |
|
| _______ | _______ |
TOTAL COMPREHENSIVE (EXPENSE)/INCOME FOR THE YEAR |
|
(1,107) |
2,356 |
|
|
|
|
(LOSS)/PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY |
|
(923) |
1,470 |
|
|
|
|
TOTAL COMPREHENSIVE (EXPENSE)/INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY |
|
(1,107) |
2,356 |
|
|
|
|
Earnings per share |
|
|
|
Basic | 7 | (5.7p) | 9.2p |
Diluted | 7 | (5.7p) | 8.7p |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2019
| Audited 2019 | Audited 2018 | |||
| £000 | £000 | £000 | £000 |
|
ASSETS |
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
Intangible assets | 18,108 |
| 17,411 |
|
|
Property, plant and equipment | 237 |
| 300 |
|
|
Right of use assets | 2,165 |
| - |
|
|
Finance lease receivables | 175 |
| - |
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT ASSETS |
| 20,685 |
| 17,711 |
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
Inventories | 36 |
| 37 |
|
|
Trade and other receivables | 6,921 |
| 7,807 |
|
|
Finance lease receivables | 39 |
| - |
|
|
Tax receivable | 1,158 |
| 1,013 |
|
|
Cash and cash equivalents | 5,957 |
| 3,572 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
| 14,111 |
| 12,429 |
|
|
|
|
|
|
|
TOTAL ASSETS |
| 34,796 |
| 30,140 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
Trade and other payables | 2,662 |
| 2,156 |
|
|
Deferred income | 8,942 |
| 8,625 |
|
|
Tax payable | 404 |
| 401 |
|
|
Financial liabilities | 301 |
| 34 |
|
|
Lease liabilities | 565 |
| - |
|
|
Deferred tax liabilities | 506 |
| 12 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
| 13,380 |
| 11,228 |
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
Financial liabilities | 559 |
| 18 |
|
|
Retirement benefit obligations | 1,804 |
| 2,249 |
|
|
Provision for liabilities | 250 |
| 250 |
|
|
Lease liabilities | 2,004 |
| - |
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES |
| 4,617 |
| 2,517 |
|
|
|
|
|
|
|
TOTAL LIABILITIES |
| 17,997 |
| 13,745 |
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital | 1,662 |
| 1,592 |
|
|
Share premium | 13,135 |
| 12,535 |
|
|
Merger reserve | 2,432 |
| 1,598 |
|
|
Share based payment reserve | 654 |
| 1,010 |
|
|
Translation reserve | 82 |
| 290 |
|
|
Retained earnings | (1,166) |
| (630) |
|
|
|
|
|
|
|
|
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT |
|
16,799 |
|
16,395 |
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES |
| 34,746 |
| 30,140 |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
|
|
Audited 2019 |
Audited 2018 | |||
|
| £000 | £000 | £000 | £000 | |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| |
(Loss)/profit before taxation |
|
| (901) |
| 1,677 | |
Adjustments for: |
|
|
|
|
| |
Depreciation |
|
| 155 |
| 144 | |
Amortisation of intangibles |
|
| 1,278 |
| 1,526 | |
Amortisation of right of use assets |
|
| 607 |
| - | |
Impairment of goodwill and capitalised development |
|
| 3,175 |
| - | |
Share based payment charge |
|
| 75 |
| 216 | |
Retirement benefit obligations |
|
| (475) |
| (499) | |
Finance income |
|
| (7) |
| (33) | |
Finance costs |
|
| 255 |
| 199 | |
|
|
|
|
|
| |
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN WORKING CAPITAL |
|
4,162 |
|
3,230 | ||
Movements in working capital: |
|
|
|
|
| |
Decrease/(Increase) in inventories |
|
| 1 |
| (7) | |
Decrease in trade and other receivables |
| 790 |
| 1,997 | ||
Increase/(Decrease) in trade, other payables and deferred income |
| 693 |
| (3,448) | ||
|
|
|
|
|
| |
NET CASH GENERATED FROM OPERATIONS |
| 5,646 |
| 1,772 | ||
Finance income |
|
| 7 |
| 33 | |
Finance costs |
|
| (255) |
| (11) | |
Income taxes |
|
| 25 |
| 408 | |
|
|
|
|
|
| |
NET CASH GENERATED FROM OPERATING ACTIVITIES
|
|
| 5,423 |
| 2,202 | |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
| ||
Capitalisation of development costs |
| (1,344) |
| (1,490) |
| |
Purchase of property, plant and equipment |
| (91) |
| (145) |
| |
Payment of contingent consideration |
| - |
| (200) |
| |
Purchase of subsidiary undertakings (net of cash acquired) |
| (1,268) |
| - |
| |
|
|
|
|
|
| |
NET CASH USED IN INVESTING ACTIVITIES |
| (2,703) |
| (1,835) | ||
|
|
|
|
|
| |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
| ||
Proceeds from issue of share capital |
| 648 |
| 50 |
| |
Lease interest payment |
| (2) |
| (4) |
| |
Repayment of lease liabilities |
| (693) |
| - |
| |
Receipts from sublease of asset Repayment of lease capital |
| 7 (34) |
| - (31) |
| |
|
|
|
|
|
| |
NET CASH GENERATED FROM FINANCING ACTIVITIES |
| (74) |
| 15 | ||
|
|
|
|
|
| |
NET INCREASE IN CASH AND CASH EQUIVALENTS |
| 2,646 |
| 382 | ||
Cash and cash equivalents at start of year |
|
| 3,572 |
| 3,064 | |
Effects of exchange rate changes on the balance of cash held in foreign currencies |
|
|
(261) |
|
126 | |
|
|
|
|
|
| |
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
| 5,957 |
| 3,572 | |
|
|
|
|
|
| |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
Share capital |
Share premium |
Merger reserve | Shares based payment reserve |
Translation reserve |
Retained earnings |
Total equity | |||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |||
Balance as at 1 January 2018 - Audited | 1,589 | 12,488 | 1,598 | 794 | 483 | (3,179) | 13,773 | |||
Profit for the year | - | - | - | - | - | 1,470 | 1,470 | |||
Other comprehensive (expense)/income for the year |
- |
- |
- |
- |
(193) |
1,079 |
886 | |||
| _______ | _______ | _______ | _______ | _______ | _______ | _______ | |||
Total comprehensive (expense)/income | - | - | - | - | (193) | 2,549 | 2,356 |
| ||
Shares issued | 3 | 47 | - | - | - | - | 50 | |||
Share based payment | - | - | - | 216 | - | - | 216 | |||
|
|
|
|
|
|
|
| |||
Balance at 31 December 2018 - Audited | 1,592 | 12,535 | 1,598 | 1,010 | 290 | (630) | 16,395 | |||
|
|
|
|
|
|
|
| |||
Adjustment on initial application of IFRS 16 | - | - | - | - | - | (68) | (68) | |||
|
|
|
|
|
|
|
| |||
Adjusted balance as at 1 January 2019 - Audited | 1,592 | 12,535 | 1,598 | 1,010 | 290 | (698) | 16,327 | |||
|
|
|
|
|
|
|
| |||
Profit for the year | - | - | - | - | - | (923) | (923) | |||
Other comprehensive income/(expense) for the year | - | - | - | - | (208) | 24 | (184) | |||
|
|
|
|
|
|
|
|
| ||
Total comprehensive (expense)/income | - | - | - | - | (208) | (899) | (1,107) |
| ||
Shares issued | 70 | 600 | 834 | - | - | - | 1,504 | |||
Share based payment | - | - | - | 75 | - | - | 75 | |||
Reserve transfer on exercise of share options |
- |
- |
- |
(431) |
- |
431 |
- | |||
|
|
|
|
|
|
|
| |||
Balance as at 31 December 2019 - Audited | 1,662 | 13,135 | 2,432 | 654 | 82 | (1,166) | 16,799 | |||
|
|
|
|
|
|
|
| |||
NOTES TO THE FINANCIAL STATEMENTS
1 Basis of preparation
GENERAL INFORMATION
The principal activity and nature of operations of the Group is the provision of world class IT solutions to the life sciences market. Instem's solutions for data collection, management and analysis are used by customers worldwide to meet the needs of life science and healthcare organisations for data-driven decision making leading to safer, more effective products. Instem plc is a public limited company, listed on AIM, and incorporated in England and Wales under the Companies Act 2006 and domiciled in England and Wales. The registered office is Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD.
STATEMENT OF COMPLIANCE
The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the years ended 31 December 2019 or 2018 as defined in section 435 of the Companies act 2006 (CA 2006) but is derived from those audited financial statements. Statutory financial statements for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered in due course. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. For the year ended 31 December 2019 their report contains a material uncertainty in respect of going concern to which the auditor drew attention by way of emphasis without modifying their report.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements and Notice of Annual General Meeting ("AGM") will be posted to the Group's shareholders on Friday 5 June 2020 and will be made available, along with this announcement, to view from that date on Instem's website at https://investors.instem.com.
The AGM is to be held at 2.00pm on Tuesday 30 June 2020 at the Company's registered office, 2 Diamond Way, Stone Business Park, Stone, Staffordshire, ST15 0SD.
In light of measures adopted by the UK Government to protect public health in response to the Covid-19 pandemic, and in line with guidance issued by The Chartered Governance Institute (ICSA), the board of directors of the Company are of the view that attendance at the AGM by a shareholder, other than for the specific purpose of ensuring that the AGM is quorate, is not essential for work purposes.
The AGM will therefore be convened with the minimum necessary quorum (which will be fulfilled by directors of the Company). Shareholders must not attend the AGM in person and anyone that seeks to attend the AGM will be refused entry. The business of the AGM will be restricted to the purposes set out in the formal Notice of AGM. There will be no additional presentations or opportunities for the board of directors to answer questions.
These steps are being taken to promote the health and wellbeing of the Company's shareholders and employees, but it remains important to the board of directors that your votes are counted at the AGM. All shareholders are therefore strongly encouraged to submit their votes on the formal business to be transacted using the proxy form enclosed with the Notice of AGM.
The chairman of the AGM will propose that each resolution, as set out in the Notice of AGM, is voted on via a poll. This means that each shareholder present in person (which shall only be such number of directors as is sufficient to ensure that the AGM is quorate) or by proxy will have one vote for each share held.
The Company will continue to monitor developments relating to Covid-19. If a situation should arise which necessitates that the arrangements for the AGM be altered, shareholders will be notified promptly via an RNS announcement and the Company's website.
In normal circumstances, the Company's AGM plays an important role in providing an opportunity for the Company's directors to engage with shareholders. The board of directors would therefore like to thank all shareholders in advance for their cooperation with and understanding of the alternative arrangements that the Company has been required to implement this year.
FORWARD-LOOKING STATEMENTS
These results were approved by the Board of Directors and authorised for issue on 2 June 2020. This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company.
BASIS OF ACCOUNTING
While the financial information included in this preliminary announcement has been prepared in in accordance with International Financial Reporting Standards (IFRS's), as adopted for use in the European Union, IFRS Interpretation Committee (IFRIC) interpretations, issued by the International Accounting Standards Board (IASB), and the Companies Act 2006, this announcement does not in itself contain sufficient information to comply with IFRSs.
The Group's accounting reference date is 31 December.
IFRSs ADOPTED IN THE YEAR
The following IFRSs, IASs and IFRICs have been adopted for the first time in the year:
The Group has adopted IFRS 16 Leases from 1 January 2019 using the modified retrospective approach and has not restated comparatives for the 2018 reporting period as permitted under the specific transition provisions in the standard.
On adoption of IFRS 16, the Group recognised lease liabilities on the statement of financial position in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.0%. For longer leases of over 5 years a discount rate of 5% has been applied. Any prepaid or accrued lease payments relating to leases recognised in the statement of financial position as at 31 December 2018 have been adjusted against the value of right of use assets as at the 1 January 2019.
Instead of recognising an operating expense for its operating lease payments, the Group now instead recognises interest on its lease liabilities and amortisation on its right of use assets.
Right of use assets increased by £3,002,000 on 1 January 2019, comprising land & buildings of £2,978,000 and motor vehicles of £24,000. Lease liabilities for land & buildings on 1 January 2019 are £3,020,000 and motor vehicles £22,000. The net impact on retained earnings on 1 January 2019 was a decrease of £68,000.
In applying the modified retrospective approach, the Group has taken advantage of the following practical expedients:
· A single discount rate has been applied to portfolios of leases with reasonably similar characteristics.
· Impairment losses on right of use assets as at 1 January 2019 have been measured by reference to the amount of any onerous lease provision recognised on 31 December 2018.
· Leases with a remaining term of 12 months or less from the date of initial application have not been recognised on the statement of financial position with payments instead recognised as an expense over the lease term on a straight-line basis,
· The Group has not reassessed whether contracts are, or contain, a lease as at the date of initial application. The Group has therefore not applied the requirements of IFRS 16 to contracts that were not previously identified as containing a lease under IAS 17 and IFRIC 4.
· For the purposes of measuring the right of use asset hindsight has been used. Therefore, it has been measured based on prevailing estimates at the date of initial application and not retrospectively.
Management have concluded that the interest rate implicit in the leases cannot not be readily determined therefore the leases held have been discounted by the incremental borrowing rate (IBR), being the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain assets of a similar value to the right of use assets in a similar economic environment.
KEY ACCOUNTING POLICIES
BUSINESS COMBINATIONS
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 'Income taxes'.
Consideration may consist of deferred consideration and contingent consideration. Deferred consideration is not based on any performance related conditions and is payable on an agreed future date. Contingent consideration is based on certain performance related conditions and payable on an agreed future date, if those conditions are met.
Deferred consideration and contingent consideration is measured at their acquisition-date fair value and are taken into account in the determination of goodwill. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates with the corresponding gain or loss being recognised in statement of comprehensive income.
GOING CONCERN
The financial position of the Group, its cash flows and liquidity position are set out in the primary statements within these financial statements.
The Group's financing arrangements consist of a committed net overdraft facility of £0.5m with NatWest Bank plc to support the Group's working capital needs. At 31 December 2019 the facility was undrawn (2018: undrawn). There are no material covenants associated with the facility.
In November 2019 the Company acquired the earnings enhancing, cash generative business of Leadscope Inc, the results of which are included in the Group's forecast cash flows for 2020 and beyond. The only financial obligation associated with this acquisition during 2020 is a deferred consideration payment of $0.4m due in November 2020.
The Group's detailed forecasts and projections, taking account of reasonably possible changes in trading performance through sensitivity analysis, show that the Group has adequate resources to be able it to continue in operation for at least twelve months from the approval date of these Consolidated Financial Statements. Accordingly, the Group continues to adopt the going concern basis in preparing its Consolidated Financial Statements.
The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been considered as part of the Group's adoption of the going concern basis. Thus far we have not observed any material impact on our overall existing business or in the level of new business opportunities that are being presented to us in the markets in which we operate. We have seen a little slippage in customers placing new business during the first quarter of 2020, but at this stage it is too early to determine whether this is likely to be a long term issue or merely a temporary matter whilst our customers are focused on managing their own businesses, with changes from introducing staff self-isolation and working from home.
The Group has a significant proportion of recurring revenue (circa 60% of total) from annual support & maintenance and SaaS contracts from a well-established global customer base. Experience from the last financial crisis showed there was no material increase in recurring revenue attrition, although annual inflationary increases were harder to secure. Revenue is supported by a largely fixed cost base comprising staff and offices.
The Group had net current assets (excluding deferred income) of £10.0m at 31 December 2019 (2018: £9.8m). The deferred income recurs each year on renewal of contracts and in general the Group has either received the related cash or has raised invoices for the services. The Group had positive cash reserves of £6.0m at the 2019 year end, in addition to the £0.5m undrawn working capital facility, although £1.9m of the cash was held in bank accounts in China, where it has been traditionally harder to repatriate funds quickly. There are however no long term restrictions on the transfer of funds from the Group bank accounts in China.
In the downside scenario analysis performed, the Board has considered the potential impact of the COVID-19 outbreak on the Group's results. In preparing this analysis the following key assumptions were used: the impact of a 25% loss of new business for the next twelve months, no hiring of new staff for twelve months and a weakening of the USD against GBP. This resulted in reduced profitability and cash over the next twelve months but the Company remained viable. We then considered a more extreme situation, if the significant negative impact of COVID-19 continued for an extended period of time into 2021. We assumed there would be no new business. and up to 25% erosion of the existing customer base for recurring revenues. This would result in the Company exhausting its cash reserves and exceeding its bank facility in November 2020.
The Company would take remedial action to counter the dramatic reduction in profit and cash through a cost cutting and fund-raising exercise that would include staff redundancies, general cost control measures, office space reduction and seeking alternative sources of funding from banks and investors.
These downside scenarios are considered unlikely. However, it is difficult to predict the overall impact and outcome of COVID-19 at this stage, particularly if there was a second wave towards the end of 2020. The Board acknowledges that based on the difficulty in determining when sufficient relief funding may become available and when the full benefit of cost cutting measures is realised there is material uncertainty in the Group's future as a result of a long-term negative impact of the COVID-19 pandemic.
The directors have concluded that current circumstances represent a material uncertainty that may cast significant doubt upon the company's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the ordinary course of business. Nevertheless after making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the process of applying the Group's accounting policies, which are described above, management have made judgements and estimations about the future that have the most significant effect on the amounts recognised in the financial statements. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.
Significant judgements
The following judgments have the most significant effect on the financial statements.
Revenue Recognition
The Group generates revenue from the provision of software licences, annual support, SaaS subscriptions, professional services and technology enabled outsourced services. Judgement is applied in determining how
many performance obligations there are within each contract and the period in which these obligations will be fulfilled and recognised as revenue, based on the Group's accounting policies.
Estimation uncertainty
Information about estimations and assumptions that may have the most significant affect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different.
Provision for liabilities
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the probable outflow of resources, and a reliable estimate can be made of the amount of the obligation. As at 31 December 2019, the Group has a provision of £0.25m (2018: £0.25m) in respect of historical contract disputes as the directors have considered that the above provision conditions have been met. The provision represents the best estimate of the risks and considers all information and legal input received by the Group.
Impairment of goodwill
The carrying value of goodwill must be assessed for impairment annually. This requires a value in use estimate which is dependant on estimation of future cashflows and the use of an appropriate discount rate to discount those cash flows to their present value. The carrying value of goodwill as at 31 December 2019 is £9,864,000 (2018: £10,590,000). There was an impairment charge of £2,482,000 during the year.
Impairment of other intangible assets
Other intangibles assets consist of assets acquired (customer relationships, intellectual property and brand names) as part of the net assets of certain subsidiaries and software, being mainly capitalised development costs. Impairment testing requires a value in use estimate which is dependant on an estimation of future cashflows and the use of an appropriate discount rate to discount those cash flows to their present value. The carrying amounts of acquired intangibles and software at the reporting date was £4,241,000 and £3,692,000 respectively (2018: £2,934,000 and £3,887,000). There was an impairment charge of £693,000 during the year.
Leases - Incremental borrowing rate
Management have concluded that that the interest rate implicit in the leases cannot not be readily determined therefore the leases held have been discounted by the incremental borrowing rate (IBR), being the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain assets of a similar value to the right of use assets in a similar economic environment. To determine the IBR, management approached a number of banks and has used the lending rate and margin offered of 4.00%, being a lending rate of 0.75% (base rate at 31 December 2019) and margin of 3.25%. For longer leases of over 5 years management considers a discount rate of 5% to be a more accurate reflection.
2 Segmental reporting
In prior years, the Group reported its business as one operating segment; Global Life Sciences. The Board managed the Group by monitoring its revenue streams and considered the cost base as a whole. Historically the Group's finance systems have recorded costs centrally and have managed costs in this way. Without systems capable of allocating costs accurately, the Board concluded that there was only one operating segment in which revenues and costs were reported. Over recent years the Group has expanded both organically and through acquisition, increasing the number of products and services. During 2019 the business was divided into three operating segments to better manage and report revenues; Study Management, Regulatory Solutions and Informatics.
There has been an ongoing project to enhance the quality of management information (MI) following the implementation of a new finance system. During the final quarter of 2019 certain direct costs were allocated to the revenue streams whilst the majority of costs were still recorded and reported centrally. The treatment in 2019 is a new disclosure based on information that was provided to the Instem Board, the Company's Chief Operating Decision Maker, at the end of the year.
Whilst the expectation in future years is to allocate more centrally held operational costs to the individual segments, it will take time for the allocations to be sufficiently accurate for the Board to use segmental cost information for meaningful decision making.
The operations of the Group are managed centrally with group-wide functions including sales and marketing, development, customer support, human resources and finance & administration.
The analysis provided below reflects costs directly attributable to the respective segments in 2019, which are primarily third party costs of sale and costs of allocated employees. The remaining indirect operational costs are accounted for centrally and are not allocated to specific segments.
There are no comparative cost numbers shown for 2018 as data was not recorded in this way and so numbers were not available. Set out below is a split of revenue in 2018 between the three business segments identified in 2019. This information is provided to aid comparability not as a restatement of prior year disclosures.
|
|
|
|
| ||||||||||
SEGMENTAL REPORTING 2019 | Study Management | Regulatory Solutions |
Informatics | Audited Total |
| |||||||||
| £000 | £000 | £000 | £000 |
| |||||||||
|
|
|
|
|
| |||||||||
Total revenue | 15,188 | 9,037 | 1,492 | 25,717 |
| |||||||||
Direct attributable costs | (4,370) | (2,111) | (660) | (7,141) |
| |||||||||
| ______ | ______ | ______ | ______ |
| |||||||||
Contribution to indirect overheads | 10,818 | 6,926 | 832 | 18,576 |
| |||||||||
|
|
|
|
|
| |||||||||
Central unallocated indirect costs |
|
|
| (13,712) |
| |||||||||
Adjusted EBITDA |
|
|
| ______ 4,864 |
| |||||||||
|
|
|
|
|
| |||||||||
Depreciation |
|
|
| (155) |
| |||||||||
Amortisation of intangibles arising on acquisition |
|
|
| (523) |
| |||||||||
Amortisation of internally generated intangibles |
|
|
| (755) |
| |||||||||
Amortisation of right of use assets |
|
|
| (607) |
| |||||||||
Impairment of goodwill and capitalised development |
|
|
|
(3,175) |
| |||||||||
|
|
|
| ______ |
| |||||||||
LOSS BEFORE NON-RECURRING COSTS |
|
|
| (351) |
| |||||||||
Non-recurring costs |
|
|
| (302) |
| |||||||||
|
|
|
| ______ |
| |||||||||
LOSS AFTER NON-RECURRING COSTS |
|
|
| (653) |
| |||||||||
|
|
|
|
|
| |||||||||
Finance income |
|
|
| 7 |
| |||||||||
Finance costs |
|
|
| (255) |
| |||||||||
|
|
|
| ______ |
| |||||||||
LOSS BEFORE TAXATION |
|
|
| (901) |
| |||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
SEGMENTAL REPORTING 2018 |
Study Management |
Regulatory Solutions |
Informatics |
Audited Total |
| |||||||||
| £000 | £000 | £000 | £000 |
| |||||||||
|
|
|
|
|
| |||||||||
Total revenue | 14,451 | 7,513 | 741 | 22,705 |
| |||||||||
Central unallocated indirect costs |
|
|
| (18,653) |
| |||||||||
Adjusted EBITDA |
|
|
| ______ 4,052 |
| |||||||||
|
|
|
|
|
| |||||||||
Depreciation |
|
|
| (144) |
| |||||||||
Amortisation of intangibles arising on acquisition |
|
|
| (788) |
| |||||||||
Amortisation of internally generated intangibles |
|
|
| (738) |
| |||||||||
|
|
|
| ______ |
| |||||||||
PROFIT BEFORE NON-RECURRING COSTS |
|
|
| 2,382 |
| |||||||||
Non-recurring costs |
|
|
| (539) |
| |||||||||
|
|
|
| ______ |
| |||||||||
PROFIT AFTER NON-RECURRING COSTS |
|
|
| 1,843 |
| |||||||||
|
|
|
|
|
| |||||||||
Finance income |
|
|
| 33 |
| |||||||||
Finance costs |
|
|
| (199) |
| |||||||||
|
|
|
| ______ |
| |||||||||
PROFIT BEFORE TAXATION |
|
|
| 1,677 |
| |||||||||
|
|
|
|
|
| |||||||||
REVENUE BY PRODUCT TYPE |
| Audited 2019 £000 | Audited 2018 £000 | |
|
|
|
| |
Licence fees |
| 3,501 | 3,491 | |
Annual support fees |
| 8,418 | 8,160 | |
SaaS subscription and support fees |
| 6,444 | 5,509 | |
Professional services |
| 1,773 | 2,204 | |
Technology enabled outsourced services |
| 5,581 | 3,341 | |
|
| ______ | _______ | |
|
| 25,717 | 22,705 | |
|
|
|
| |
REVENUE BY GEOGRAPHICAL LOCATION | Audited 2019 £000
| Audited 2018 £000 |
UK | 3,414 | 3,504 |
Rest of Europe | 5,051 | 4,534 |
USA and Canada | 12,701 | 11,507 |
Rest of World | 4,551 | 3,160 |
| ______ | ______ |
| 25,717 | 22,705 |
|
|
|
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY GEOGRAPHICAL LOCATION
| Audited 2019 £000
| Audited 2018 £000 |
UK | 17,779 | 16,896 |
Rest of Europe | 1,107 | 624 |
USA and Canada | 432 | 133 |
Rest of World | 881 | 58 |
| ______ | ______ |
| 20,199 | 17,711 |
|
|
|
There were no customers which represented more than 10% of the Group revenue in 2019 (2018: none).
3 Non recurring costs
|
| Audited 2019 £000 | Audited 2018 £000 |
|
|
|
|
Professional fees |
| - | 364 |
Guaranteed Minimum Pension (GMP) equalisation provision Legal costs relating to historical contract disputes Acquisition costs |
|
- 106 196 |
126 49 - |
|
|
|
|
|
| 302 | 539 |
|
|
|
|
Acquisition costs incurred in the period relate to the purchase of Leadscope Inc. on 15 November 2019. The costs incurred were directly linked to the acquisition and consisted of legal, accounting and commercial advice.
4 Finance income
|
| Audited 2019 £000 | Audited 2018 £000 |
|
|
|
|
|
|
Foreign exchange gains |
| - | 25 |
|
Other interest |
| 7 | 8 |
|
|
|
|
|
|
|
| 7 | 33 |
|
|
|
|
|
|
|
|
|
| |
5 Finance costs
|
| Audited 2019 £000 | Audited 2018 £000 |
|
|
|
|
Bank loans and overdrafts |
| 34 | 11 |
Unwinding discount on deferred consideration |
| - | 12 |
Net interest charge on pension scheme |
| 60 | 172 |
Lease interest cost |
| 2 | 4 |
Right of use asset interest cost |
| 118 | - |
Foreign exchange losses |
| 41 | - |
|
|
|
|
|
| 255 | 199 |
|
|
|
|
|
|
|
|
6 Taxation
Income taxes recognised in profit or loss: | Audited 2019 £000 | Audited 2018 £000 |
Current tax: |
|
|
UK corporation tax on profit of the year | - | - |
UK corporation tax in respect of previous years | 28 | (85) |
Adjustments in respect of R&D tax credit Foreign tax | 464 (404) | 477 (403) |
Foreign tax in respect of previous years | 67 | (12) |
| _______ | _______ |
Total current tax credit/(charge) | 155 | (23) |
| _______ | _______ |
Deferred tax: |
|
|
Current year charge | (96) | (67) |
Adjustment in respect of previous years | (11) | (83) |
Retirement benefit obligation | (70) | (34) |
| _______ | _______ |
Total deferred tax charge | (177) | (184) |
| _______ | _______ |
Total income tax charge recognised in the current year | (22) | (207) |
|
|
|
7 Leases
Nature of leasing activities in the capacity of lessee
The Group leases a number of offices in the jurisdictions from which it operates. In these jurisdictions the periodic rent is fixed over the lease term, with inflationary increases incorporated into the fixed payments stipulated in the lease agreements. Where rental agreements include market rate escalations, the lease liability is re-measured when the change in cash payments takes effect. The Group also leases certain vehicles. Leases of vehicles comprise only fixed payments over the lease terms. With the exception of short term leases, leases of low value underlying assets, leases held by the newly acquired Leadscope Inc and a lease held for a telephone system, with less than twelve months remaining on the lease as at 31 December 2019, each lease is reflected on the balance sheet as a right of use asset and a lease liability.
Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right of use asset can only be used by the Group. Leases are either non cancellable or may only be cancelled by incurring a termination fee. Some leases contain an option to extend the lease for a further term. For office leases the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease.
| The table below describes the nature of the Groups leasing activities by type of right of use asset recognised on the balance sheet: | ||||||||
Right of use assets |
No of right of use assets leased |
Range of remaining term |
No of leases with extension options |
No of leases with options to purchase |
No of leases with payments linked to an index |
No of leases with termination options |
| ||
|
|
|
|
|
|
|
| ||
Office buildings | 9 | 3.5 years | 9 | 0 | 1 | 0 |
| ||
|
|
|
|
|
|
|
| ||
Vehicles | 2 | 0.4 years | 0 | 0 | 0 | 0 |
| ||
The aggregate lease liability recognised in the statement of financial position at 1 January 2019 and the Group's operating lease commitment at 31 December 2018 can be reconciled as follows:
|
|
| 2019 £000 | ||||
|
|
|
| ||||
Operating lease commitment as at 31 December 2018 |
|
| 3,363 | ||||
Effect of foreign exchange on brought forward balance |
|
| (104) | ||||
Effect of discounting those lease commitments |
|
| (358) | ||||
Recognition of variable lease payments |
|
| 83 | ||||
Effect of electing to account for short-term and low value leases off statement of financial position |
|
|
(6) | ||||
Effect of lease extended during 2019 |
|
| 24 | ||||
|
|
|
| ||||
At 1 January 2019 |
|
| 3,002 | ||||
Right of use assets |
Land & buildings |
Motor vehicles |
Total |
| |||
| £000 | £000 | £000 |
| |||
|
|
|
|
| |||
As at 1 January 2019 | 2,978
| 24 | 3,002 |
| |||
Derecognition of sublease Amortisation | (249) (590) | - (17) | (249) (607) |
| |||
Exchange adjustment | 19 | - | 19 |
| |||
|
|
|
|
| |||
As at 31 December 2019 | 2,158 | 7 | 2,165 |
| |||
|
|
|
|
| |||
Lease liabilities
|
Land & buildings |
Motor vehicles |
Total | |
| £000 | £000 | £000 | |
|
|
|
| |
As at 1 January 2019 | 3,020
| 22 | 3,042 | |
Interest expense Lease payments | 117 (676) | 1 (17) | 118 (693) | |
Exchange adjustment | 102 | - | 102 | |
|
|
|
| |
As at 31 December 2019 | 2,563 | 6 | 2,569 | |
|
|
|
| |
Lease liability maturity analysis:
As at 31 December 2019
|
| 1 year or less | 2 to 5 years | After five years | Total |
|
| £000 | £000 | £000 | £000 |
|
|
|
|
|
|
Lease liabilities |
| 565 | 1,950 | 54 | 2,569 |
|
|
|
|
|
|
The following amounts in respect of leases, where the company is a lessee, have been recognised in consolidated statement of comprehensive income:
|
|
|
| 2019 £000 |
|
|
|
|
|
| Expenses relating to short-term leases |
|
| 21 |
| Low value lease expense |
|
| 7 |
| Interest expense |
|
| 118 |
| Amortisation of right of use assets |
|
| 607 |
|
|
|
|
|
The total cash outflow for leases in 2019 was £0.7m.
8 Earnings per share
Basic and diluted earnings per share
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted number of ordinary shares outstanding to assume conversion of all dilutive potential shares arising from the share option scheme. The dilutive impact of the share options is calculated by determining the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares) based on the monetary value of the subscription rights attached to the outstanding share options. The diluted loss per share in 2019 is the same as basic loss per share as losses have an anti-dilutive effect.
| Audited 2019 | Audited 2018 | ||||
| Loss after tax
£000 | Weighted average number of shares
'000 | Loss per share
Pence | Profit after tax
£000 | Weighted average number of shares
'000 | Earnings per share
Pence |
Earnings per share - Basic |
(923) |
16,254 |
(5.7) |
1,470 |
15,909 |
9.2 |
Potentially dilutive shares |
- |
799 |
- |
- |
940 |
- |
| _______ | _______ | _______ | _______ | _______ | _______ |
Earnings per share - Diluted |
(923) |
17,053 |
(5.7) |
1,470 |
16,849 |
8.7 |
| _______ | _______ | _______ | _______ | _______ | _______ |
Adjusted earnings per share
Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange on the revaluation of inter-group balances included in finance income/(costs), non-recurring items, impairment of goodwill and capitalised development and amortisation of intangibles on acquisitions. Diluted adjusted earnings per share is calculated by adjusting the weighted number of ordinary shares outstanding to assume conversion of all dilutive potential shares arising from the share option scheme. The dilutive impact of the share options is calculated by determining the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares) based on the monetary value of the subscription rights attached to the outstanding share options.
|
Audited 2019 |
Audited 2018 | ||||
| Adjusted Profit after tax
£000 | Weighted average number of shares
'000 | Adjusted Earnings per share
Pence | Adjusted Profit after tax
£000 | Weighted average number of shares
'000 | Adjusted Earnings per share
Pence |
Earnings per share - Basic |
3,138 |
16,254 |
19.3 |
2,611 |
15,909 |
16.4 |
Potentially dilutive shares |
- |
799 |
- |
- |
940 |
- |
| _______ | _______ | _______ | _______ | _______ | _______ |
Earnings per share - Diluted |
3,138 |
17,053 |
18.4 |
2,611 |
16,849 |
15.5 |
| _______ | _______ | _______ | _______ | _______ | _______ |
|
Audited 2019 £000 |
Audited 2018 £000 | ||||
Reconciliation of adjusted profit before tax:
|
|
| ||||
Reported (loss)/profit before tax | (901) | 1,677 | ||||
Non-recurring costs | 302 | 539 | ||||
Amortisation of acquired intangibles | 523 | 788 | ||||
Impairment of goodwill and capitalised development | 3,175 | - | ||||
Foreign exchange differences on revaluation of inter-group balances | 61 | (186) | ||||
| ______ | ______ | ||||
Adjusted profit before tax | 3,160 | 2,818 | ||||
Tax | (22) | (207) | ||||
| ______ | ______ | ||||
Adjusted profit after tax | 3,138 | 2,611 | ||||
| _____ | _____ | ||||
9 Subsequent events
No adjusting events have occurred between the 31 December reporting date and the date of approval of these financial statements.
On 13th February 2020 it was announced that a member of the senior management team had exercised share options over 50,714 ordinary shares of 10p each in the Company.
In January 2020 the Group informed its staff of its intention to implement an all-staff share and option scheme. The scheme has subsequently been formally launched with staff receiving the right to 386,686 ordinary shares of 10p each in the Company that will vest in April 2023.
Like most businesses worldwide the Group is having to deal with the impact of COVID-19, with its primary concern being for the safety and wellbeing of its staff and their families. While the Group expects some disruption to demand for its products and services there is also expected to be some increases in customer demand.
The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been considered as part of the Group's adoption of the going concern basis. Thus far we have not observed any material impact on our overall existing business or in the level of new business opportunities that are being presented to us in the markets in which we operate. We have seen a little slippage in customers placing new business during the first quarter of 2020, but at this stage it is too early to determine whether this is likely to be a long term issue or merely a temporary matter whilst our customers are focused on managing their own businesses, with changes from introducing staff self-isolation and working from home.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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