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Contents
Overview 1 Operational and financial highlights 2 Business at a glance 4 Chairmans statement 6 Chief Executives strategic review Business review 8 Operating review 12 Financial review 13 orporate social responsibility C statement Governance 15 Board of Directors 16 Directors report 19 Corporate governance statement 21 tatement of Directors S responsibilities 22 Directors remuneration report 24 ndependent auditors report to I the members of Advanced Computer Software Group plc Financials 25 Consolidated income statement 26 onsolidated statement of C comprehensive income 27 onsolidated balance sheet C 28 onsolidated cash flow statement C 29 onsolidated statement of changes C in equity 30 otes to the consolidated N financial statements 57 ompany balance sheet C 58 otes to the financial statements N of the Company Ibc ompany information C
Advanced Computer Software Group is a leading provider of patient management software solutions for the healthcare sector, and back office solutions for businesses and organisations in both the public and private sectors. The Group has an annual turnover of 95m and over 850 staff based in seven regional offices serving over 7,000 customers within the UK. Originally established to consolidate the fragmented primary care software market, the Group now comprises three divisions addressing the needs of both public and private sector organisations. The Health & Care division sells a range of products to the NHS and private sector including patient workflow management and case management for social care providers, mobile applications for care in the community and rostering applications for social care settings. The Business Solutions division provides accounting, payroll, HR and document management solutions to local authorities, healthcare organisations and companies across the private sector. Underpinning these divisions, the Groups 365 Managed Services division supports the Groups software portfolio in addition to providing managed services to a wide range of customers. By means of this common technology platform the Group is able to offer solutions in a variety of ways to best suit customers business needs including the provision of hosted Cloud-based solutions, such as Software as a Service (SaaS), which can be delivered as a fully managed service with software hosted either in the Groups data centre or at customers own premises.
community care sector Successful integration of COA acquisition and realisation of more than 2m annualised cost savings
Business review
Approximately 57% of Group revenue is recurring and a further 35% is repeating business Adjusted EBITDA* up 235% to 24.1m (2010: 7.2m) Profit from operations up 36% to 5.3m (2010: 3.9m) Adjusted pre-tax profit* up 209% to 21.0m (2010: 6.8m) Adjusted EPS** up 171% to 4.6p (2010: 1.7p)
Governance
Financials
* **
Adjusted EBITDA and pre-tax profit: before one-off restructuring costs, share based payments and amortisation of acquired intangible assets. Adjusted EPS: before one-off restructuring costs, share based payments, amortisation of intangible assets and tax adjustments. Organic growth is calculated using the pro forma results for 2011 and 2010 as if all acquisitions were present on the 1st March 2009.
Business at a glance
The Group is structured as three complementary divisions, each with its own management team and portfolio of products and services. Health & Care is focussed on the provision of patient workflow management and case management solutions for out-of-hours and community care providers. Business Solutions supplies accounting and back office solutions to public sector organisations and the private sector. 365 Managed Services delivers services in support of the Groups products and to a wide range of customers including financial services providers, local authorities and retail organisations. The Group continues to look for opportunities to sell its core products in new markets and its mobile products for the healthcare sector iNurse and iConnect, which are derived from the patient workflow management software, have been well received. Cross-selling is an important revenue generator for the Group and a particular focus has been on the collaboration of the Business Solutions and 365 Managed Services divisions to offer integrated hosted solutions for local authorities allowing them to benefit from shared services arrangements. The development of Cloud technology was a priority during the year and the Group has invested in new infrastructure and equipment for its datacentre to meet the anticipated demand for outsourcing as pressure mounts for businesses and organisations to reduce costs.
Overview
Business Solutions
Business review
Market
Market
Market
a leading supplier of patient workflow and patient care management systems for urgent and unplanned care, home care, residential care, end of life and hospice care, private clinics and environmental health clinics.
range of software solutions to a wide variety of customers in the healthcare, financial services, banking, retail, transport, not for profit and housing sectors.
Revenue
20.0m 6.4m
Adjusted EBITDA Products
Revenue
55.8m 16.6m
Adjusted EBITDA Products
Revenue
Governance
19.6m 3.5m
Adjusted EBITDA Services
Adastra
(patient work flow management) (patient care management) (mobile solutions for district nurses and carers) End-of-Life Register (patient record management) (rostering and scheduling solutions) (community care management)
Crosscare
(financial and human capital management) (corporate, financial and people analytics) (financial management) Clearview (budgeting and forecasting) (human capital and payroll management) (procurement) (document management)
iNurse/iConnect
application hosting, management, bespoke development, website maintenance, and e-commerce solutions.
Financials
Open Accounts/e2
Collaborative Planning/
Version One
Chairmans statement
I am pleased to report an excellent set of results for the first full year of trading following the acquisition of COA Solutions in February 2010 which transformed the Group in terms of both scale and addressable markets.
Overview
Revenues rose by 216% to 95.4m (2010: 30.2m), including organic growth of 4%, and adjusted EBITDA* rose 235% to 24.1m (2010: 7.2m) giving an improved adjusted EBITDA margin of 25%. Operating cash conversion** continues to be strong at 93% and net debt has decreased by 9.8m to 31.2m. Approximately 57% of revenues were derived from maintenance, hosting and managed service contracts from the installed base of over 7,000 customers. Significantly our customer retention rate remained in excess of 95%, reflecting our focus on delivering value and excellent customer service. A major focus for the year has been the integration of three recently acquired businesses: COA Solutions, acquired at the close of the previous financial year; Cerrus in March 2010 and Caresys in September 2010. COA Solutions, now forming the major part of the Business Solutions division and specialising in financial and human capital management systems for the health, public and private sectors was, at 99.3m, our largest acquisition to date. The acquisition has transformed the Group, not only by contributing 57.5m of revenues and 16.8m of EBITDA, but also by providing a robust platform for future expansion. The acquisitions of Cerrus Ltd and Caresys Software Ltd, both providing solutions for the management of care, resource planning and operational requirements, extended our offering to community health and social care providers a fragmented market that we believe offers opportunities for growth given the UKs ageing population. Our offshore development facility in Bangalore continues to thrive. We have also switched the development facility in Vietnam, which we gained as part of the acquisition of COA Solutions, to Bangalore in order to manage the development of the next generation of our products efficiently.
The Comprehensive Spending Review and NHS reforms set out in the July 2010 White Paper, have considerably changed Government spending plans during the year. The focus is now firmly on cost reduction, with increased demand for outsourcing and shared services. We have successfully addressed these three key requirements by continuing to provide innovative ways to reduce costs and increase efficiency via our mobile application portfolio and by collaborating, both across our business divisions and with our strategic partners, to offer a shared platform to local authorities and other public sector organisations. The ability to deliver our in-house software via the Cloud or as a managed service provides our customers with a further opportunity to reduce costs. Following the annual review of our corporate governance policy and procedure, the Board believes that the appointment of an independent non-executive director is now appropriate and has commenced the search for a suitable candidate. The Board has also considered whether the payment of a dividend is appropriate for the current year and has concluded that the payment of a dividend should remain on the agenda but be carried forward until such time as the Groups bank debt was substantially repaid. We have achieved a great deal during the year and believe our plans to grow and develop Advanceds portfolio of healthcare and back office solutions will ensure an exciting and productive future. I thank my fellow directors and all Group employees for their willingness and determination to drive the business forward in these challenging times.
Financials
Adjusted EBITDA is defined as profit from operations before interest, tax, depreciation, one-off restructuring costs, share based payments and amortisation of acquired intangible assets. ** The operating cash conversion rate is calculated as cash generated from operations as a percentage of acquired adjusted EBITDA pre capitalisation of research and development expenditure and post one-off reorganisation costs.
With over 7,000 customers and more than 850 employees, Advanced is now the fifth largest UK provider of software to the UK market (source: Techmarket 2010). In less than three years, turnover has grown from 7.3m to 95.4m.
Overview
Originally formed to consolidate a fragmented healthcare sector, we have identified and acquired four businesses since 2009 enabling us to extend our initial core patient management software offering for the primary care sector to community and social care providers. In 2009, finding that many healthcare businesses were overvalued, we broadened our search to include targets offering managed services and back office applications that could either be cross-sold into health and care organisations or provide a platform for growth into other niche markets. The acquisition of Business Systems Group Holdings plc providing managed services, hosting and Cloud enablement to a wide range of customers in the financial services, retail and not for profit sectors took place in June 2009. The acquisition of COA Solutions specialising in accounting and back office software solutions followed in February 2010 and not only increased our revenues and profits significantly, but also provided us with an efficient and robust infrastructure and experienced management team to use as a platform for future expansion. During the year, we strengthened our product range for community care and social care providers through the acquisition of Cerrus and Caresys, each providing complementary case management and administrative support applications. The functionality of the two main products has been combined in one product going forward to streamline future development and improve the customer experience and we believe we are now well-placed to benefit from the surge in the community and social care market that will inevitably result from the rapidly ageing population and the push for care in the community. In addition to integrating our acquisitions, we have retained our focus on organic growth and continue to develop our core patient management software applications to take advantage of new opportunities in healthcare. We have set up strategic partnerships with major mobile telephony organisations to expand the reach of our time-saving and cost-effective iNurse and iConnect mobile applications for district nurses and community carers. Our solutions for summary patient care record and end-of-life register management are now widely in use across the UK and our solutions for case management and rostering, which are ideal for private healthcare and social care settings, are set to grow as a result of the NHS reform.
Cross-selling was a significant contributor to the Groups results for the year, largely due to the collaboration of the Business Solutions and Managed Services divisions in supplying integrated hosted solutions for local authority shared services and healthcare organisations. We expect shared services to be increasingly specified by local authorities as pressure to cut costs continues to mount and we are confident that our solution works efficiently and securely with a clear resulting cost saving. We have maintained our focus on operational performance, with cost reduction and efficiency measures high on the agenda. We have delivered the planned annualised savings of more than 2m following the integration of COA Solutions into the Group with synergies achieved from rationalising development centres, properties and senior management. These synergies contributed to the increased Group operating margin of 25% and at the same time, skills and processes were made available to the Group as a whole to optimise operational efficiency. Outlook We will continue to build and develop market-leading positions in our core markets of healthcare and business solutions. Future Health & Care acquisitions include further extensions of our patient care management software, whilst for Business Solutions we will be targeting businesses with complementary products to broaden our portfolio of back office solutions and provide further opportunities for cross-selling. I am very happy with progress made during the year and am looking forward to the next stage of building a substantial and increasingly profitable business for the future.
Operating review
These demands and government calls for cost reductions in the NHS have both played to the Groups strengths. The divisions products all help providers to deliver care in the most cost-effective way. With the focus on delivery of care in the community, Advanceds mobile applications iNurse and iConnect are generating considerable interest, not only from organisations keen to deliver better care for less, but also from mobile telephony providers who see an opportunity to generate incremental revenues. Results for the Health & Care division were excellent with revenue organic growth of 10% and EBITDA organic growth of 32%.
Advanced is well placed to deliver technology solutions to address the urgent demand of an ageing population.
Highlights of the year included: Increased take-up of End of Life Care Register and Summary Care Record iNurse and iConnect users increased to 7,000 94 homecare providers, 65 care homes and nine hospices took the Groups software solutions 21 urgent care/walk-in centres and 16 point of access clinics were added to the customer base
Case study: End of Life Care Register helps to deliver 15% reduction in hospital deaths
Advanceds End of Life Care Register (EOLCR) has helped Weston Area Health Trust to deliver a 15% reduction in hospital deaths. The EOLCR is visible across the whole health community and can be seen by hospital teams, accident and emergency departments, GP practices, community nurses, ambulance services and hospices. Dying in ones place of choice is seen as a key marker of the provision of high quality end of life care, and
EOLCR has been instrumental in communicating patients wishes on this sensitive issue. Reducing hospital death rate is significant not only from a quality perspective but also for containing costs. In the case of Weston Area Health Trust, these savings have been successfully reinvested in community services.
Overview
Advanceds experience in successfully implementing shared services for local authorities, combined with the ability to deliver all or any of its software solutions as a managed service or via the Cloud, means that the Group is in a strong position to benefit from the costcutting pressures being exerted by central government. The Private Sector business suffered from a poor start to the year, which impacted both revenues and EBITDA. However, the appointment of new senior management at the half year, and the ability to provide Cloud-based integrated solutions delivered by the 365 Managed Services division, has re-energised the business resulting in the sales pipeline at the year-end being up 44% over the previous year. New business wins include London Metal Exchange, British Gymnastics Council and Crisis. New partners included Experian Payments, who collaborated with Advanced to cut transaction costs and improve payment efficiency within the public sector by linking the Groups customers to the Experian bank account validation software.
The Group is in a strong position to benefit from Government cost cutting measures.
Business review
Business Solutions
The Business Solutions division provides accounting, payroll, HR and document management solutions through its two business units, Public Sector and Private Sector, each aligned to its customer base and with its own management and product suite. The Public Sector business units results were steady despite the cut-backs in public spending announced as part of the Governments Comprehensive Spending Review in July 2010 and plans for widespread reform of the National Health Service.
Governance
can now be processed in less than an hour. Rachel Spilsbury, Head of Information says, We have visited several GP practices throughout the district and used the information from ABS solution as a basis to guide these discussions. This has enabled us to work much more closely with GP Consortia, and provide information more swiftly and in greater detail to support commissioning decisions. The solution also allows us to update information to reflect changes on the ground so that commissioners can see the effects of their actions.
Operating review
365 Managed Services performed well during the year with 15% organic revenue growth and organic EBITDA growth up by 110%. The move to outsourcing and utilisation of shared services to reduce costs, particularly in the public sector, has resulted in a strong pipeline of opportunity with further growth anticipated in the near term. The development of Cloud technology has been a particular focus during the year. The Group has invested significantly in new infrastructure and equipment for its data centre. Cross selling with other Group businesses supplying proprietary software has proved to be successful and 450 of Advanceds customers are already Cloud-enabled with delivery via a private cloud (dedicated services with unique configuration) or application cloud (configurable application delivery).
The Group has invested significantly in new infrastructure and equipment for its data centre.
Case study: NMC signs 5.2 million contract with Advanced 365
The Nursing and Midwifery Council (NMC), the regulator for over 660,000 registered nurses and midwives in England, Wales, Scotland, Northern Ireland and the Channel Islands, signed a five year contract worth up to 5.2 million with Advanced 365 in August 2010. Jo Ingham, Interim Head of ICT, NMC says: It is clear that Advanced 365 can deliver enhanced
service levels, expertise and security as well as an effective disaster recovery solution. The NMC is the regulator for nurses and midwives and not a maintainer of IT services and so we require dedicated IT specialists managing and supporting our networks and servers. With Advanced 365 on-board, we are confident that our IT infrastructure will operate effectively and securely and will be managed by a team of knowledgeable and highly qualified IT experts.
10
Overview
11
Financial review
Results
Groups segments The Groups divisional analysis is based on the type of software or services supplied to the customer base. For the Health & Care division, this is patient care management software and services and the rostering and scheduling of carers. The Business Solutions division supplies financial management and HR software and services. 365 Managed Services division supplies hosting, managed services and systems development. The Board believes that the classification of results by the type of software and services supplied reflects the way the Group is managed and this methodology is used for segmental analysis in the financial statements 2011. Gross profit margin Gross profit, calculated as turnover less third party software and services, was 83% (2010: 76%) reflecting the higher proportion of software and services in the Group mix following on from the acquisition of COA. Pre-tax profit Reported pre-tax profit was 3.1m (2010: 4.2m) reflecting the non cash charge of 15.4m (2010: 2.0m) for amortisation of intangible assets relating to acquisitions, and higher finance costs following the COA acquisition. Taxation The Group has recognised a tax credit for the year of 1.0m (2010: charge of 1m). The effective rate of (33%) (2010: 24%) has been driven by adjustments to deferred tax as a result of the change in the UK Corporation tax rate (credit of 0.7m) and a reassessment of the likelihood of the group being able to utilise trading losses and capital allowances following the successful integration of its acquired businesses (credit of 1.5m). The effective rate excluding these adjustments would be 38% which is higher than the statutory rate of 28% as a result of non-tax deductible expenses of 0.4m less additional R&D relief of 0.1m. The Group has trading losses of 1.8m available for utilisation against future profits. Earnings per share Adjusted earnings per share was up 171% to 4.6p (2010: 1.7p). Reported earnings per share were up 9% to 1.2p (2010: 1.1p) The Group is not paying a dividend.
Revenue Group turnover for the year more than trebled to 95.4m (2010:30.2m), reflecting the impact of the acquisition of COA at the end of the last financial year. The Health & Care division grew by 27% to 20.0m (2010:15.7m) overall, 10% organically. Revenue of 1.4m was contributed by Cerrus and Caresys. The organic growth was largely due to sales of recently launched products and improved performance from the community care products. The Business Solutions division, which includes Public Sector revenues of 34.3m, reported revenue of 55.8m (2010: 2.7m), 1% down on the previous years pro forma revenue. Public Sector revenue was steady with the Private Sector unit down 4%, due to a poor start to the year arising from the absence of a dedicated management team. This has now been remedied and the performance of the unit has improved. 365 Managed Services revenue increased 66% to 19.6m (2010: 11.8m), 15% organically. This division has particularly benefitted from the expanded Group customer base, following the acquisition of COA.
365 Health & Business Managed Central Care Solutions Services costs Group results
(2.4)
Adjusted EBITDA Group adjusted EBITDA (EBITDA before one-off restructuring costs and share based payments) rose 235% to 24.1m (2010: 7.2m) with Group pro forma adjusted EBITDA rising from 19.8m to 24.3m, clearly illustrating the annualised cost synergies of over 2m realised from the COA acquisition and the general focus on controlling costs. Health & Care adjusted EBITDA was 6.4m (2010: 6.1m), Business Solutions was 16.6m (2010: 0.5m) and 365 Managed Services was 3.5m (2010: 1.6m). Pro-forma results The table below shows the pro-forma operating results of the Groups trading subsidiaries as if the results of all the acquisitions made during the year had been included from 1 March 2010.
365 Health & Business Managed Central Care Solutions Services costs Group results
(2.4)
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Advanced recognises its corporate social responsibility and is committed to carrying on business responsibly and to managing its relationships with stakeholders with integrity and transparency. The Group provides products and services to organisations in both the public and the private sectors through its three divisions and takes the reliability of its products and the delivery and efficiency of its services seriously. Advanceds solutions are directed towards offering its customers more cost-effective, secure and better ways to manage their operations.
The Groups corporate and social responsibility priorities are: Customers The Group is committed to achieving the highest levels of customer service and satisfaction in line with delivering high-quality, reliable products and services. Health & Care The Group provides clinical and back-office software and services to customers in the healthcare sector and is conscious of its responsibility to provide robust, often mission-critical, solutions that affect the lives and well-being of patients and vulnerable people requiring care. To keep the Groups products and services up to date and in line with new healthcare initiatives, we regularly undertake clinical review meetings with practicing GPs and continuously monitor our performance on service incidents. 365 Managed Services The Group works closely with customers to identify and provide cost-effective services to optimise their business quality and efficiency. The Group appreciates that these services are critical to its customers own business success and therefore services are governed by service level agreements to demonstrate the commitment to providing those services. Business Solutions The Group provides accounting and human capital management solutions to a wide variety of commercial enterprises, which are designed to improve business efficiency. Advanced consistently invests significant sums in the development of its products to offer its customers best-of-breed solutions. Employees The Group aims to maintain a high level of staff retention by providing a positive work environment in which all staff can thrive. This is illustrated by (i) recognising and rewarding outstanding performance; (ii) investing in training and personal development; and (iii) ensuring that career success and progression within the Group is solely determined by ability and achievement. The Group firmly believes in equal opportunities and treats all potential recruits and employees fairly, regardless of disability, race, gender, age, gender orientation or religious and political beliefs. Health and safety The Group is committed to providing a safe and healthy environment for all its staff, contractors and visitors and delegates responsibility to the managing directors of each businesses unit who are accountable for the health and safety of their business unit. Each business unit reviews its own strategy, issues and performance on a regular basis.
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Board of Directors
Overview
Michael Jackson, Chairman Michael became Chairman of Advanced in August 2008 and is also Chairman of the Audit Committee. He founded Elderstreet Investments Limited in 1990 and is its Executive Chairman. For the past 25 years, he has specialised in raising finance for, and investing in, the smaller companies sector. Michael was previously Chairman of The Sage Group plc, Computer Software Group plc and Party Gaming plc. He is also a director and investor in many other quoted and unquoted companies.
Vin Murria, Chief Executive Officer Vin joined Advanced in August 2008 as Chief Executive Officer and has over 20 years experience of working for private equity backed and publicly listed companies focusing on the software sector. She was formerly Chief Executive Officer of Computer Software Group plc, which was taken private in April 2007 and subsequently merged with IRIS Software Group Limited before being sold in July 2007 to Hellman & Friedman in a transaction worth 500m. Vin is a partner at Elderstreet Capital and a Non-Executive Director of Greenco plc.
Barbara Firth, Chief Financial Officer Barbara has many years of experience in senior managerial and financial roles and was previously Chief Financial Officer of Computer Software Group plc where she worked closely with Vin Murria and Michael Jackson until the merger with IRIS Software Group Limited in July 2007. Following the merger Barbara was Acquisitions and Integration Director of the newly combined group until joining Advanced in September 2009.
Mark Watts, Non-Executive Director Mark became a Non-Executive Director of Advanced in August 2008 and is also Chairman of the Remuneration Committee. He is joint managing partner in Marwyn Capital LLP and Marwyn Investment Management LLP and a director of many portfolio companies including Melorio plc, Praesepe plc and Silverdell plc. At Marwyn, Mark and fellow managing partner James Corsellis have undertaken over 50 transactions, raising approximately 1bn in acquisition funding for Marwyn-backed management teams and special purpose acquisition vehicles to date.
Financials
15
Directors report
The Directors present their annual report and the audited financial statements of Advanced Computer Software Group plc (the Company) and the Group for the year ended 28 February 2011. Principal activities Advanced is a leading provider of technology solutions to the healthcare, public and private sector delivered through its three divisions Health & Care, Business Solutions and 365 Managed Services. Results and dividends The Group profit for the year after provision for taxation was 4.2m (2010: 3.2m). The Boards current dividend policy is to invest cash flow in its operations and accordingly the Directors do not recommend the payment of a dividend for the year (2010: nil). The dividend policy is kept under regular review. Acquisitions The Group made two acquisitions during the year, further details of which are set out in note 11 to the financial statements. Post balance sheet events Open Logistix Systems Limited was acquired on 4 March 2011 as disclosed in note 26 to the financial statements. Principal risks and uncertainties The Board considers that the principal risks and uncertainties facing the Group can be classified as follows:
Risk Business risks Mitigation
Business review A review of the principal activities of the Group, key performance indicators, principal risks and uncertainties and its financial performance is provided in the Chairmans statement, the Chief Executives review, the business review and the financial review all of which are incorporated into this report by reference. Going concern The financial statements have been prepared on a going concern basis as, after making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future. Research and development During the year the Group capitalised 1.7m (2010: 0.3m) of development costs relating to internal software development in accordance with IAS 38. Other research and development costs not meeting the criteria for capitalisation were written off during the year.
Markets fall into decline Failure to execute M&A strategy successfully Failure to innovate, technical obsolescence
Financial risks
Regular evaluation of existing markets and consideration of new markets Communication and close monitoring of integration plans Development roadmap Regularly reviewed Monthly performance reviews and reforecasts, tight cost control Investor relations programme Close contact with key advisers Company policy maintained and monitored Company policy maintained and monitored Ad hoc testing and periodic review Education of senior management and regular interface with NOMAD Business continuity and disaster recovery plan regularly revisited Incentive plans and benchmarking reviewed annually Contractual protection for IP in place Customer satisfaction surveys regularly undertaken
Financial performance deteriorates Inability to finance growth or acquisitions Market expectations not met
Compliance risks
Health & safety regulations breached Bribery Act non-compliance Failure of internal control systems Breach of AIM rules
Operational and other risks
Physical disaster and business continuity failure Loss of key employees Loss of intangible assets Loss of customers
16
Overview
Financial instruments Financial instruments, including financial risk management objectives and policies and policies for hedging, exposure to price risk, credit risk, liquidity risk and cash flow risk are disclosed in note 20 to the financial statements. Political and charitable contributions The Group made charitable contributions during the year of 1.6m (2010: 0.2m) relating to the waiver of Chief Executives salary, including the associated Employers National Insurance Contribution saving, which were donated to PS Foundation, registered charity no 1123570. In accordance with the Boards policy no political donations were made during the year. Employees The Groups culture is to promote the involvement of all its staff in its business aims and performance by linking reward to achievement. Many employees are stakeholders in the business through participation in share option and Sharesave schemes. The Group adopts an equal opportunities policy under which training and career development opportunities are available to all employees regardless of gender, religion, race, disability or sexual orientation. Fair consideration is given to applications for employment from disabled people and the retention and retraining, where practicable, of employees who become disabled is encouraged. Directors The Directors who held office during the year ended 28 February 2011 were as follows: Vinodka Murria Barbara Firth Michael Jackson Mark Watts Chief Executive Officer Chief Financial Officer Non-Executive Chairman Non-Executive Director
Substantial shareholdings At the date of this report, the Company has been notified of the following holdings of 3% or more of its issued ordinary capital:
Fund manager
M&G Investment Management Marwyn Investment Management Dowgate Capital, stockbrokers BlackRock Vin Murria* Fidelity Investments Royal London Asset Management JPMorgan Asset Management Nick Gerard Majedie Asset Management
14.94% 11.79% 10.91% 10.57% 10.16% 4.71% 4.34% 3.74% 3.66% 3.06%
* The percentage of issued share capital held by Vin Murria at the date of this report includes the growth interest in 17,761,651 shares awarded to her on 4 March 2010.
Share capital Details of the authorised and issued share capital, together with details of the movement in the Companys issued share capital during the year are shown in note 24 to the financial statements. At the date of this report the Company consisted of 354,880,592 issued and fully paid ordinary shares with a nominal value of 10p per share, listed on the Alternative Investment Market of the London Stock Exchange. Of these, 17,761,651 shares were held jointly by the Employee Benefit Trust and Vin Murria. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. The Trustee of the Employee Benefit Trust and Vin Murria have agreed to abstain from voting at any general meeting in respect of the jointly owned shares. There are no specific restrictions on the size of holding nor on the transfer of shares which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Companys shares than may result in restrictions on the transfer of securities or voting rights. No person has any special rights of control over the Companys share capital and all issued shares are fully paid. Details of employee share schemes are set out in note 25 to the financial statements.
Details of the remuneration of all Directors who served during the year and their interests in the ordinary share capital of the Company are given in the Directors remuneration report. The Group maintained cover during the year for its Directors and Officers and those of subsidiary companies under a Directors and Officers liability insurance policy, as required by the Companies Act 2006.
Financials
17
Directors report
continued
Significant agreements There are a number of agreements that take effect, alter or terminate upon a change of control such as commercial contracts, bank loan agreement and employee share plans. The only one of these which is considered to be significant in terms of likely impact on the business of the Group as a whole, is the bank facility (as described in note 20 to the financial statements) which requires majority lender consent for any change on control. Should such consent not be forthcoming, a change of control would trigger a mandatory repayment of the entire facility. The Directors are not aware of any agreements between the Company and its Directors or staff that provide for compensation for loss of office or employment that occurs because of a change of control. Supplier payment policy The Group recognises the importance of good relationships with its suppliers and subcontractors. Although the Group does not follow any particular code or standard on payment practice, its established payment policy is to agree payment terms in advance of any commitment being entered into and to ensure that payments are made in accordance with agreed terms. Trade creditor days for the Group for the year ended 28 February 2011 were 30 (2010: 48). Auditors The Directors confirm that, as at the date this report was approved, and so far as each Director is aware, there is no relevant audit information of which the Groups auditors are unaware and that each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Groups auditors are aware of that information. KPMG Audit Plc, who were appointed on 8 March 2011 following BDO LLP resignation, have expressed their willingness to continue in office as auditors and a resolution to appoint them and authorise the Directors to determine their remuneration for the ensuing year will be proposed at the forthcoming Annual General Meeting. Annual General Meeting The Annual General Meeting will be held at Munro House, Portsmouth Road, Cobham, Surrey KT11 1TF on 19 August 2011 at 10am. Details of the resolutions to be proposed are contained in the Notice of Annual General Meeting sent to shareholders with this annual report. By order of the Board Barbara Firth Director 15 July 2011
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Introduction The Board is committed to the principles of good corporate governance set out in the Corporate Governance Code published by the Financial Reporting Council in June 2010 (the Code) and complies, so far as it feels is appropriate for an AIM-listed company of its size, by adopting the Quoted Company Alliance (QCA) Corporate Governance Guidelines for AIM Companies published in September 2010 excepting that: The Directors forming the Remuneration and Audit Committees are not independent, as defined by the Code; and the Board does not formally evaluate the performance of the Board, its committees and its individual directors but evaluates the effectiveness of the Board as a whole. This statement, together with the statement of Directors responsibilities on page 21 and the Directors remuneration report, indicates how the Company has applied the principles of the Code. Board responsibilities The Boards principal responsibilities are to deliver shareholder value, maintain reliable systems of control and provide the overall vision and leadership for the Company. It determines corporate strategy, reviews the Groups operating and financial performance to ensure it is effectively controlled, and is the primary decision-maker for all matters considered to be significant to the Group as a whole. There is a formal schedule of matters reserved for approval by the Board including the approval of acquisitions and divestments, budgets and business plans, commercial strategy, major capital expenditure, treasury policy, corporate governance, risk control and the appointment of new directors. Board composition and balance The Board, chaired by Michael Jackson, comprises two Executive Directors and two Non-Executive Directors. Collectively, the Directors have a wide range of relevant business and financial experience and knowledge which is vital to the success of the Group. The Chairman and Chief Executive have clearly defined and distinct roles. The Chairman is responsible for corporate governance, shareholder communications and the efficient operation of the Board. The Chief Executive is responsible for the day-to-day operation of the Group and leads the communication programme with analysts and potential investors. The Board annually reviews its performance and considers that the appointment of an independent Non-Executive Director is now appropriate and has commenced the search for a suitable candidate. Biographical details of the Directors can be found on page 15.
Board process The Board carries out its duties with the assistance of the Board committees. The Board meets regularly during the year and additional meetings are arranged as necessary for specific purposes. Full and timely information is provided to the Board to enable it to function effectively and to allow Directors to discharge their responsibilities. The table below shows the number of monthly meetings individual Directors could have attended during the year (taking account of eligibility, appointment and retirement dates) and their actual attendance.
Business review
No of meetings
Meetings attended
10 10 10 10
9 10 10 9
The Board has procedures in place to deal with potential conflicts of interest and confirms that the procedures have operated effectively during the year under review. There is a procedure for Directors to take independent professional advice if necessary and at the Companys expense in addition to the access that every Director has to the advice and services of a Company Secretary, who is responsible to the Board for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with. Internal control and risk management The Directors have overall responsibility for ensuring that the Group maintains a system of internal control to provide reasonable assurance of effective and efficient operations, internal financial control and compliance with laws and regulations. The risk management process and system of internal control are designed to manage rather than eliminate risk and the Board recognises that this system of internal control can only provide reasonable and not absolute assurance against material misstatement or loss. The Group has a clearly defined organisational structure. Managers assume responsibility for running day-to-day operational activities with performance regularly reviewed and employees are required to follow procedures and policies appropriate to their position within the business. The Board is responsible for identifying, evaluating and managing all major business risks facing the Group. To facilitate the assessment of risks, monthly reports on non-financial matters are compiled by all business units covering such matters as sales performance, project progress, compliance, health and safety, environment, product quality, customer support metrics and human resource issues.
Governance Financials
19
No of meetings
Meetings attended
2 2
2 2
Remuneration Committee The report of the Remuneration Committee can be found on page 22. The Committee is chaired by Mark Watts and meets at least once a year. The table below shows the number of meetings individual Directors could have attended during the year (taking account of eligibility, appointment and retirement) and their actual attendance.
No of meetings Meetings attended
2 2
2 2
Nomination Committee There is no separate Nominations Committee, the appointment of new Directors is considered by the Board as a whole. Relations with shareholders The Board attaches great importance to maintaining good relationships with its institutional shareholders. Following the announcement of the half-year and year-end results, a series of formal meetings with institutional shareholders is undertaken which allows the Executive Directors to form relationships with the investors and for the shareholders to raise any concerns. The Companys brokers and financial PR advisers provide feedback from investor and analyst meetings which are presented to the Board. The Annual General Meeting also provides an opportunity for the Board to communicate directly with shareholders. The Company maintains a website which contains information on the Group, regulatory announcements and financial statements: www.advancedcomputersoftware.com.
20
The Directors are responsible for preparing the annual report, The Directors remuneration report and the Group and Parent Company financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the profit or loss of the Group for the year. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statement, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether IFRS as adopted by the EU, and applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Parent Company financial statements respectively; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Companys transactions and disclose with reasonably accuracy at any time the financial position of the Group and the Parent Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring the annual report and financial statements are made available on the Companys website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Companys website is the responsibility of the Directors. The Directors responsibility also extends to the ongoing integrity of the financial statements contained therein.
21
Non-Executive Directors The Board determines the remuneration of the Non-Executive Directors. Michael Jackson remunerated through payroll and the fees for Mark Watts services are invoiced by Marwyn Capital LLP. Service contracts The service contracts and letters of appointment of the Directors include the following terms:
Date of appointment Notice period
Executive Directors Vin Murria Barbara Firth Non-Executive Directors Michael Jackson Mark Watts
The Executives are on rolling contracts and offer themselves for re-election by rotation in accordance with the Companys Articles of Association. Directors interests in the ordinary share capital of the Company
Directors Directors interests at interests at 28 February 2011 28 February 2010
18,289,216 1,470,588
SAYE
10,000 10,000
22
Overview
Salary 000
Bonus 000
Benefits 000
Executive Directors Vinodka Murria* Barbara Firth Karen Bach Non-Executive Directors Michael Jackson Mark Watts Mark Watts
50 195
1,387
60
9 1
218 79 69 25 15 406
25 270
1,387
60
10
15 15
Business review
*Ms Murria waived her right to the full compensation due under her employment contract and elected from 1 March 2010 to 31 August 2010 to receive 24,000 gross salary per annum plus benefits and from 1 September to 28 February 2011 to receive 75,000 plus benefits. An amount equivalent to the remuneration waived, plus the value of the Employers National Insurance Contributions (ENIC) saved, was paid to PS Foundation, registered charity no 1123570.
Ms Murria also waived any discretionary bonuses to be paid to her during the year. The Board awarded her a bonus of 500,000 in respect of her contribution to the Groups success for the period to 28 February 2010 and 650,000 in respect of the acquisition and successful integration of COA for the year ended to 28 February 2011. An amount equivalent to the remuneration waived plus the value of ENIC saved was paid to PS Foundation, registered charity no 1123570.
Governance
Financials
23
Independent auditors report to the members of Advanced Computer Software Group plc
We have audited the financial statements of Advanced Computer Software Group plc for the year ended 28 February 2011 set out on pages 25 to 60. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the companys members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the companys members those matters we are required to state to them in an auditors 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 companys members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors Responsibilities Statement set out on page 21, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards (APBs) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APBs website at www.frc.org.uk/apb/scope/UKNP/ www.frc.org.uk/ apb/scope/private.cfm. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the groups and of the parent companys affairs as at 28 February 2011 and of the groups profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.
P Gresham Senior Statutory Auditor for and on behalf of KPMG Audit Plc Chartered Accountants Arlington Business Park Theale Reading Berkshire RG7 4SD United Kingdom 15 July 2011
24
Notes
2011 000
2010 000
Revenue Cost of sales Gross profit Administrative costs Adjusted EBITDA Reorganisation costs Share based payments (IFRS2) Depreciation Amortisation of acquired intangible assets (IFRS3) Profit from operations Finance income Finance costs Profit before taxation Taxation Profit for the year Earnings per share Basic (pence) Diluted (pence) The notes on pages 30 to 56 form part of these financial statements.
4,5
95,397 (16,514) 78,883 (73,620) 24,078 (298) (1,853) (1,270) (15,394) 5,263 50 (2,189) 3,124
30,191 (7,356) 22,835 (18,966) 7,200 (65) (572) (698) (1,996) 3,869 410 (110) 4,169 (1,000) 3,169
8,25 13 12
Business review
5,6
7 7
1,048 4,172
Governance
10 10
1.2 1.1
1.1 1.0
Financials
25
Foreign exchange translation differences Net income recognised directly in equity Profit for the year Total comprehensive income for the year The notes on pages 30 to 56 form part of these financial statements.
27 27 3,169 3,196
26
Notes
2011 000
2010 000
Non-current assets Intangible assets Property, plant and equipment Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Deferred tax
12 13
14 15 16
18
195,759
Total assets Current liabilities Trade and other payables Deferred income Corporation tax Loans and borrowings Total current liabilities Non-current liabilities Deferred tax Provisions Loans and borrowings Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium Merger reserve Foreign exchange reserve Share trust reserve Retained earnings Total equity attributable to equity holders of the Company The notes on pages 30 to 56 form part of these financial statements.
17
20
Governance
18 19 20
Financials
24 24 24 24 24 24
These financial statements were approved by the board of directors and authorised for issue on 15 July 2011 and were signed on its behalf by: Barbara Firth Director
27
Notes
2011 000
2010 000
Cash flows from operating activities Profit for the year Adjustments for Depreciation Amortisation of intangible assets Share based payment IFRS 2 Net finance costs/(income) Tax (credit)/charge Operating cash flows before movement in working capital Increase in trade and other payables Increase in trade and other receivables Decrease/(increase) in stock Cash generated in the operations Corporation tax paid Net cash inflow from operating activities Cash flows from investing activities Acquisition of subsidiaries (net of cash acquired) Finance income Development expenditure Acquisition of PPE Cash outflow from investing activities Cash flows from financing activities Proceeds from issue of new shares Cost of issue of shares Proceed from new loan Repayment of borrowings Borrowing fees Cash from financing activities Change in cash and cash equivalents Cash and cash equivalents at start of previous period Cash and cash equivalents at the end of the year The notes on pages 30 to 56 form part of these financial statements.
4,172
13 12 25 7 9
3,169 698 1,996 572 (300) 1,000 7,135 996 (3,120) 200 5,211 (359) 4,852
1,270 15,676 1,853 2,139 (1,048) 24,062 4,601 (6,185) (27) 22,451 (3,462) 18,989
11
The cash and cash equivalents at the end of the year together with the revolving facility, represents the cash and cash equivalents balance shown in the balance sheet.
28
Balance at 28 February 2010 Deferred tax asset on share based payment Transfer of shares to employees from EBT Share based payment Total comprehensive income for the year Balance at 28 February 2011
35,488 35,488
Ordinary share capital 000
33,361 33,361
7,826 7,826
27 (38) (11)
Total 000
Balance at 28 February 2009 Issue of share capital For cash In respect of acquisition of subsidiaries Costs of issuing share capital Share based payment Total comprehensive income for the year Balance at 28 February 2010
19,092
5,426
2,821
(1,954)
57
25,442
5,005 7,826
(1,954)
27 27
Governance
Financials
29
30
Overview
3 Significant accounting policies The accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in preparation of the Groups annual financial statements for the year ended 28 February 2011, except for the adoption of new Standards and Interpretations as of 1 March 2010, noted below: IFRS 3 Business Combinations The Group adopted the revised standards from 1 March 2010. IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. Transaction costs are recognised in administration expenses. These changes impact the amount of goodwill recognised in the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions no longer give rise to goodwill, nor give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes required by IFRS 3 (Revised) and IAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The change in accounting policy was applied prospectively and had no material impact on earnings per share or the results for the year ended 28 February 2011. The significant accounting policies adopted by the Group are set out below. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The depreciation policies for each class of asset are as follows: Leasehold improvements over the period of the lease Office equipment and furniture 20% to 33 13% straight-line Computer equipment 20% to 25% straight-line Land & buildings 2% straight-line Depreciation methods, useful lives and residual values are reviewed at each reporting date. Intangibles Goodwill Goodwill is recognised on the acquisition of a subsidiary and is the difference between the cost of the acquisition and the fair value of tangible and intangible assets acquired. The carrying value of goodwill is reviewed at each reporting date, with any impairment required charged to the income statement. Research and development Development activities involve a plan or design for the production of new or substantially improved computer software. Development expenditure is capitalised only if development costs can be measured reliably, the software program is technically and commercially feasible, future economic benefits are probable, and the Group has sufficient resources available to complete development and to use, lease or sell the asset. The expenditure capitalised includes only the cost of gross direct labour costs that are directly attributable to preparing the asset for its intended use or third party costs incurred directly on the development activities above. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Other research and development expenditure not meeting the above criteria is recognised in the income statement as incurred. Acquired intangibles Following the acquisitions in the year (see note 11) the assets acquired were classified into tangible and intangible assets and fair values applied using the principles of IFRS 3. This led to the creation of intangible assets recognised on the consolidated balance sheet which will be amortised over their estimated useful lives. The assets recognised were: 1. Brand name 2. Customer contracts and relationships 3. Technology assets 4. In-process research and development
Advanced Computer Software Group plc Annual Report 2011 31
Overview
3 Significant accounting policies continued Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, call deposits and short-term deposits with a maturity of less than three months. Bank overdrafts are repayable on demand and form an integral part of the Groups cash management strategy. Leased assets Leases where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases. Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated 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. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Groups presentational currency, sterling, 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 taken directly to the translation reserve and are released into the income statement upon disposal of the foreign operation in due course. Revenue recognition The Groups revenues are derived from the sale of software product licences, the associated consultancy services, hardware, maintenance, managed services and supplies of third party software. All revenue is reported exclusive of value added tax. The Group will only recognise revenue when: persuasive evidence of an arrangement exists. This is typically a signed contract or customer purchase order; the price to the customer is fixed or determinable; delivery has occurred; and collectability is reasonably assured and there are no material outstanding conditions or contingencies attaching to the receipt of monies due. The Group recognises revenue on each element of a contract as follows: software product licence revenue is recognised when risks and rewards have passed to the customer and there is no significant ongoing obligation on the group. Where software is sold as part of a bundled arrangement, the group allocates revenue to each component based on its fair value; hardware revenue is recognised on delivery of the goods; consultancy services (including training) the group performs a number of professional services to its customers. These can include implementation and configuration of the software and training of the customers staff. Revenue is recognised as the services are performed; product maintenance the group provides software updates to its customers as part of the ongoing maintenance contract. Revenue is recognised rateably over the duration of the contract; and managed services where the group provides hosting services, revenue is recognised rateably over the duration of the contract.
Advanced Computer Software Group plc Annual Report 2011 33
34
Overview
3 Significant accounting policies continued Critical accounting estimates and judgements Revenue recognition Revenues for arrangements that involve significant modification, or customisation of the software may be recognised based on achievement of contract specific milestones, or using the percentage of completion method depending on the terms of the contract. The group determines the stage of completion based on an assessment of direct labour costs incurred to date as a percentage of total estimated project costs required to complete the project. If collectability is not reasonably assured at the outset of a contract, the group defers revenue and only recognises revenue on receipt of the cash and to the extent that it has discharged its obligations under the contract. Impairment of goodwill The Group is required to test goodwill for potential impairment on an annual basis. The recoverable amount is determined based on value in use calculations which requires the estimation of future cash flows and the selection of a discount rate in order to calculate the present value of the cash flows. Actual outcomes of this calculation may vary. Further information including the carrying value is given in note 12. Intangible assets On acquisition of a business, the Group is required to value the assets acquired and recognise intangible assets on the balance sheet. The valuation of these assets relies on various assumptions, including future revenues and costs derived from those assets and the selection of an appropriate discount rate in order to calculate the present value of those cashflows. Further information including the carrying value is given in note 12. Useful lives of intangible assets and property, plant and equipment Intangible assets, property, plant and equipment are amortised or depreciated over their useful lives. These useful lives are based on managements estimates of the period that the assets will generate revenue. These estimates are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the Consolidated Income Statement in specific periods. Inventories The trading subsidiaries within the Group review the net realisable value of, and demand for, their inventory on a regular basis to provide assurance that it is stated at the lower of cost and net realisable value. Factors that could impact estimated demand and selling prices include the timing and success of future technological innovations, competitor activities, supplier prices and economic trends. Share-based payments The fair value of share-based payments is estimated using the binominal valuation model as at the date of grant and using certain assumptions. These assumptions are disclosed in note 25. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. In arriving at estimates for provisions, estimates and judgements are made, in particular with regard to timing and amount. Calculations are based on anticipated future cash flows relating to the relevant event, which are estimated by management and where appropriate supported by the use of external advisers. Taxation The Group is subject to United Kingdom corporate taxation and judgement is required in determining the provision for income and deferred taxation. The Group recognises taxation assets and liabilities based upon estimates and assessments of many factors including past experience, advice received on the relevant taxation legislation and judgements about the outcome of future events. To the extent that the final outcome of these matters is different from the amounts recorded, such differences will impact on the taxation charge made in the Consolidated Income Statement in the period in which such determination is made.
35
During the year the Group had three reportable segments as described below, which were the Groups divisions. These divisions represent the lower level of operating segment, excluding any aggregation, which is consistent with the internal reporting to the Board. The CGU used for the goodwill impairment test in note 12 is in line with the reported segment. The divisions offered differing solutions and were managed separately as they required different resources and strategies. For each of the divisions, the Groups Board reviewed internal management reports on a monthly basis, which showed adjusted EBITDA performance of each division. The following summary describes the operations of each division: Health & Care: provides clinical software solutions, including patient care management and clinical support software to urgent and unscheduled healthcare providers and social care providers. 365 Managed Services: provides hosting, cloud enablement and managed IT services to a wide range of customers in both the public and private sectors.
36
Overview
5 Segments continued Business Solutions: provides a complete suite of back office applications including financial management, payroll, human capital management, e-procurement and document management to businesses in the retail, health & care, banking, leisure and other commercial sectors. In the year under review, the acquisitions of Cerrus and Caresys augmented the size of the Health & Care segment. The business of COA Solutions, acquired in February 2010, was sub-divided into two main parts being Public and Commercial sector, which formed the Business Solutions division. The 365 Managed Services division was established during the prior period following the acquisition of BSG. A small part of the COA Solutions business has increased the size of the segment. Unallocated items represents the elimination of the inter-segment sales and shows the non-segmental Group expenses incurred during the period. Information regarding the result of each reportable segment is included below which is consistent with the monthly information provided to the Board. Other information reported to the board is on a group wide basis and therefore not associated with segments.
Health & Care 2011 000 2010 000 Business Solutions 2011 000 2010 000 365 Managed Services 2011 000 2010 000 Unallocated items 2011 000 2010 000 2011 000 Total 2010 000
Business review
External revenue Recurring Non-recurring Inter-segment revenue EBITDA Share based payments Reorganisation costs Adjusted EBITDA Depreciation Amortisation of acquired intangible assets Finance expense/ (income) Tax charge/(credit)
95,397 54,044 41,353 34 (1,428) 21,927 1,853 454 298 (974) 24,078 1,270 698 1,996 15,394 2,139 (1,048)
Governance
(300) 1,000
(300) 1,000
Product information Revenues from products and services of the Group were as follows in the year:
Product 2011 000 2010 000
Financials
37
Profit from operations is stated after charging/(crediting): Loss on disposal of fixed assets Depreciation of tangible fixed assets Owned assets Leased assets Amortisation of intangible fixed assets Capitalised development costs Other intangible assets Operating lease lease payments Hire of plant and machinery operating leases Hire of other assets operating leases Net foreign currency translation loss/(gain) Audit services Fees payable to the company's auditors for the audit of the company and consolidated financial statements Fees payable to the Company's Auditors and its associates for other services: Audit of the Company's subsidiaries Other services pursuant to legislation Taxation services Other services 7 Finance and income costs
25
57
1,245 25
667 31
282 15,394
155 1,841
15 461 (25)
20
22
110 50 45 10
39 8 23
2011 000
2010 000
Bank interest receivable Total financial income Bank interest payable Interest charge related to dilapidation provision Total financial costs
38
Overview
8 Employee expenses
2011 000 2010 000
The average monthly number of employees of the Group (including Directors) during the year was:
Business review 2011 2010
176 36 28 240
Emoluments Contributions to defined contribution pension schemes Share based payments Total Highest paid director Gross salary Car and other benefits in kind Waived salary and bonus
Governance
50 9 1,387 1,446
16 9 193 218
In the year ended 28 February 2011, three Directors were remunerated as employees through payroll and one Director was remunerated via a consultancy fee paid to Marwyn Capital LLP which is included in the directors remuneration report. Vinodka Murria waived the right to her full salary and bonus under her employment contract and elected to receive 0.05m gross salary during the year plus the provision of a company car. The Group paid the waived elements of her salary and bonus plus other benefits and national insurance saved to PS Foundation registered charity number 1123570. The Directors believe that the key management personnel are the Executive and Non-Executive Directors.
Financials
39
The tax charge for the year is lower than the standard rate of 28% corporation tax in the United Kingdom as explained below:
2011 000 2010 000
Tax reconciliation: Profit/(loss) on ordinary activities before tax UK corporation tax at 28% (2010:28%) Effects of: Items not deductible/taxable for tax purposes Additional deduction for R&D expenditure Overseas tax differences Utilisation of previously unrecognised tax losses Loss carried forward to future periods Prior year adjustment Change in tax rate Tax charge for the year
3,124 875
4,169 1,167
The Group has recognised a tax credit for the year of 1.0m (2010: charge of 1.0m). The effective rate of (33%) (2010: 24%) has been driven by adjustments to deferred tax as a result of the change in the UK Corporation tax rate (credit of 0.7m) and a reassessment of the likelihood of the group being able to utilise trading losses and capital allowances following the successful integration of its acquired businesses (credit of 1.5m). The effective rate excluding these adjustments would be 38% which is higher than the statutory rate of 28% as a result of non-tax deductible expenses of 0.4m less additional R&D relief of 0.1m. On the 29 March 2011 a 26% rate of UK corporation tax was enacted. The Company will benefit from a 683,000 reduction in the 2012 tax charge as a result of the recalculation of the net deferred tax liabilities as at 28 February 2011 from 27% to 26%. Further reductions of the UK corporation tax rate are in discussion.
40
Overview
10 Earnings per share The basic earnings per share has been calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of shares in issue during the relevant period. Earnings per share
2011 2010
Net earnings attributable to ordinary shareholders (000) Weighted average number of ordinary shares in issue Basic earnings per share Diluted earnings per share
2011
Weighted average number of ordinary shares in issue Adjustment for share schemes Weighted average number of potential ordinary shares in issue Diluted basic earnings per share
The diluted profit per share has been calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of shares in issue during the year, adjusted for potentially dilutive shares that are not anti-dilutive. The adjusted EPS is calculated by removing the one-off restructuring costs, share based payments, amortisation of acquired intangible assets and tax adjustments from the net profit.
Weighted average number of shares Per share amount Pence
Earnings 000
Governance
Basic earnings per share Amortisation of acquired intangible assets Share based payments Reorganisation costs Tax effect on adjustment Adjusted earnings per share Diluted earnings per share Amortisation of acquired intangible assets Share based payments Reorganisation costs Tax effect on adjustment Adjusted diluted earnings per share 11 Acquisitions
4,172 15,394 1,853 298 (6,345) 15,372 4,172 15,394 1,853 298 (6,345) 15,372
337,118,941
1.2
337,118,941 386,964,177
4.6 1.1
Financials
386,964,177
4.0
Small acquisitions during the year The Group acquired all of the ordinary shares of two entities during the year Cerrus Limited (acquired 1 March 2010) and Caresys Software Limited (acquired 30 September 2010) as shown in the aggregate table below*.
41
Property plant and equipment Cash and cash equivalents Current assets Current liabilities Long term liabilities Customer contracts and relationships Technology Deferred tax liabilities
11 (31) 31 (485) (402) 373 245 (174) (432) 771 339 502 (31) 872
18 23 368 (454) (519) 981 601 (424) 594 2,024 2,618 282 23 2,877
29 (8) 399 (939) (921) 1,354 846 (598) 162 2,795 2,957 784 (8) 3,749
Goodwill on acquisition Consideration paid Loan repayment at acquisition Cash acquired Net cash outflow
*the assets shown were recognised on acquisition
These acquisitions augmented the Groups offering to the Health & Care sector. The companies were acquired for a total consideration of 3.0m. In the post acquisition period the companies contributed net profit of 0.1m to the Groups results. Prior year acquisitions Business Systems Group Holdings plc On 12 June 2009, the Group acquired all of the ordinary shares in Business Systems Group Holdings plc (BSG) for a total consideration net of cash acquired with the business of 8.2m, satisfied in cash and shares. BSG provides hosting and IT outsourcing services, which has enabled Advanced to extend effective hosting, managed services and outsourcing capabilities to its customers across the NHS primary care sector.
Book value 000 Adjustment 000 Fair value at acquisition 000
Property plant and equipment Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Other creditors Provisions Customer relationships Deferred tax asset
1,019 92 5,654 10,180 (3,060) (3,529) (592) 2,841 443 13,048 5,356 18,404 (5,180) (841) (10,180) 2,203
Goodwill on acquisition Consideration paid Issue of 14,000,000 shares Exercise price of options acquired Cash acquired Net cash outflow (including expenses of 0.4m)
42
Overview
11 Acquisitions continued Redac Holdings Limited (COA) On 11 February 2010, the Group acquired all of the ordinary shares in Redac Holdings Limited (RHL) for a total cash outflow of 99.3m, including consideration paid, transaction costs and the assumption of various shareholder loans. RHL provides software products for accounting and budgeting, data analysis, business intelligence (including patient pathways), compliance, billing, executive dashboard, HR, payroll, procurement, document management and business process outsourcing (BPO) service.
Book value 000 Adjustment 000 Fair value at acquisition 000
Property plant and equipment Previously capitalised intangibles Investments Inventories Trade and other receivables Cash and cash equivalents Loans and borrowings Trade and other payables Provisions Customer contracts and relationships Technology and R&D value Brand value Deferred tax asset
2,535 106 2 498 11,352 4,442 (61,680) (29,458) (586) 1,020 (71,769)
2,535 106 2 498 11,352 4,442 (61,680) (29,458) (586) 61,596 20,136 3,590 (22,870) (10,337) 51,335 40,998 (3,314) 61,680 (1,038) 98,326 979 99,305
Goodwill on acquisition Consideration paid Cash acquired Loans and borrowings acquired Amounts owing at 28 February 2010 Net cash outflow at 28 February 2010 Fees paid during the year Net cash outflow at 28 February 2011
Acquisition of smaller entities The Group acquired all of the ordinary shares of certain other smaller entities during the prior year. These were:
Financials
StaffPlan Limited (acquired 12 July 2009) Advanced Business & Healthcare Solutions India Private Limited (formerly Oak Labs India Private Limited, acquired 28 September 2009) Healthy Software Limited (acquired 12 November 2009)
43
Cost At beginning of year Acquisitions through business combinations Eligible development costs capitalised At end of year Amortisation At beginning of year Charged in year At end of year Net book value At 28 February 2011 Net book value At 28 February 2010
3,965 3,965
58,387
2,791
16,583
69,777
2,306
149,844
65,976
3,782
21,197
66,998
909
158,862
Expenditure on research and development in the year was 8.2m (2010: 0.8m) of which 1.7m (2010: 0.3m) relating to the development of new products was capitalised in accordance with IFRS. Year ended 28 February 2010
Customer contracts and relationships 000 Brand 000 Technology 000 Goodwill 000 Development costs 000 Total 000
Cost At beginning of year Acquisitions through business combinations Eligible development costs capitalised At end of year Amortisation At beginning of year Charged in year At end of year Net book value At 28 February 2010 Net book value At 28 February 2009
65,976
3,782
21,197
66,998
909
158,862
2,524
328
328
8,616
637
12,433
44
Overview
12 Intangible assets continued Impairment tests for cash-generating units containing goodwill. The goodwill on the balance sheet relates to the acquisitions in the current and prior periods (Acquisition note 11) and is calculated as: the total consideration paid (including fees for the acquisition made in prior periods) less the fair value of the net assets acquired. This goodwill has then been tested for impairment as at 28 February 2011 following IAS 36 criteria. To confirm that no impairment of goodwill is necessary, management compared the carrying value of each CGU to the value in use. The value in use was calculated using the subsidiarys 2011-12 budget ending 28 February 2012 as approved by the Board, 2012-13 forecasts and forecasts, with a 4% growth assumption, for the following four years. Terminal values were calculated, based on the perpetuity of cash generated. Forecasts and terminal values were discounted using the following discount rates: 365 Managed Services Business Solutions Health & Care 20.10% 12.40% 12.40%
Business review
The pre tax discount rates are based on beta values of similar companies in the same industry adjusted to reflect managements assessment of specific risks related to the subsidiary. No impairment is deemed necessary as a result of the testing performed as shown in the table below:
CGU listing Goodwill Intangibles Fixed assets Carrying (Value in use) value VIU Excess VIU Sensitivity
Governance
The sensitivity above shows the sensitivity between the carrying value and the value in use. The key assumptions used and the approach to determining their value are:
Assumption How determined
These have been based on the Board approved forecast for 2013 and contain 4% growth, which the Board believe is appropriate. 2.5% growth
Financials
45
Cost Balance at 1 March 2010 Assets acquired as part of business combinations Additions in the year Disposals At 28 February 2011 Depreciation Balance at 1 March 2010 Depreciation charge for the year Disposals At 28 February 2011 Net book value At 28 February 2011 Net book value At 28 February 2010
1,323
1,072
1,226
3,621
1,488
861
1,432
3,781
1.5m of disposals relates to a write off of a leasehold property due to a lease that has expired during the year. Year ended 28 February 2010
Leasehold property 000 Office equipment & furniture 000 Computer equipment 000 Total 000
Cost Balance at 1 March 2009 Assets acquired as part of business combinations Additions in the year Disposals At 28 February 2010 Depreciation Balance at 1 March 2009 Assets acquired as part of business combinations Depreciation charge for the year Disposals At 28 February 2010 Net book value At 28 February 2010 Net book value At 28 February 2009
1,488
861
1,432
3,781
68
153
211
432
46
Overview
14 Inventories
2011 000 2010 000
Business review
11,226 10 11,236
10,193 86 10,279
Governance
18 Deferred tax liability Deferred taxation is calculated in full on temporary differences under the liability method using the taxation rate 27% (2010: 28%). Deferred taxation assets have been recognised on temporary differences where the Directors believe that it is probably that these assets will be recovered.
2011 (Charged)/ credited to profit or loss 000 2010 (Charged)/ credited to profit or loss 000
Financials
Accelerated capital allowances Short term temporary differences liabilities Short term temporary assets Intangible assets Taxation losses
Included in the net deferred tax liability of 18.4m is 3.2m of deferred tax assets split as 2.0m accelerated capital allowance, 0.5m tax losses and 0.7m short term temporary differences and the deferred tax liability of 21.6m is split 21.0m intangible assets and 0.6m short term temporary differences. The Group has 6.9m (2010: 7.5m) of trading losses of which 1.8m (2010: 3.3m) are expected to be utilised against future profits, the balance largely relates to losses acquired in the COA group that cannot be utilised.
47
Accelerated capital allowances Non trade loan relationship deficit Management expenses Capital losses Taxation losses Deferred tax asset at 27% (2010: 28%)
The un-provided deferred tax assets have not been recognised due to uncertainties over availability of qualifying profits. 19 Provisions: non-current The non current provision relates to dilapidations and onerous leases in respect of buildings leased by the Group as well as provision arising from the acquisition made during the year.
Onerous lease provision 000 Deferred consideration Leasehold for purchase dilapidation of investment 000 000
Other 000
Total 000
At 28 February 2010 Finance charges Amounts utilised during the year Amounts arising from acquisition At 28 February 2011 20 Financial instruments
182 182
30 30
The maturity analysis of the Groups financial liabilities for the year ended 28 February 2011 is as follows:
Within the next 12 months 000 Within one to two years 000 Within two to three and a half years 000 Total financial liabilities 000
Loans and borrowings Revolving facility Term loan Unamortised loan issue costs Unamortised loan issue costs Future interest payments Other financial liabilities
25,000 7,500 32,500 (361) 32,139 361 1,167 33,667 12,337 46,004
25,000 17,500 42,500 (887) 41,613 887 1,542 44,042 12,337 56,379
48
Overview
20 Financial instruments continued The maturity analysis of the Groups financial liabilities for the year ended 28 February 2010 was as follow:
Within the next 12 months 000 Within one to two years 000 Within two to three and a half years 000 Total financial liabilities 000
Loans and borrowings Revolving facility Term loan Unamortised loan issue costs Future interest payments Other financial liabilities
Business review
The revolving facility has a term of three years six months but is repayable on demand. The future interest payments have been calculated based on the forecasted maturity of the term loan and revolving facility shown above, using an estimated 4% interest rate. If the rates were to vary by 50 basis points, the effect on the future interest payment would be as follow:
Within the next 12 months 000 Within one to two years 000 Within two to three and a half years 000 Governance Total future interest payments 000
44 50 56
The term loan and revolving facility are secured by way of unlimited cross guarantees and full and fixed floating charges over the assets of all Group companies, subject to material company provisions; first legal mortgages over all United Kingdom freehold and long leasehold premises; first fixed charges over all shares in United Kingdom subsidiaries; the assignment of rights and interests under the Sale and Purchase Agreement for the acquisition of Redac Holdings Limited; any hedging agreements and key contracts; and the assignment of keyman insurance policies. The Groups financial assets Cash and receivables
2011 000 2010 000 Financials
The above balance represents the Groups maximum exposure to credit risk.
49
13,771
6,416
732
Current
1-3 months
>3 months
Trade receivables
12,102
5,677
116
At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of the trade and other receivables in the balance sheet. Cash and cash equivalents The Group places cash and cash equivalents with banks to earn interest. Due to the uncertainty within the financial sector over recent months, the cash has been placed with four banks to reduce the concentration of cash and/or deposits with any one institution. Market risk Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. In managing interest rate and currency risks, the Group aims to reduce the impact of short term fluctuations on the Groups earnings. Over the longer term, however, permanent changes in interest rates and foreign exchange would have an impact on consolidated earnings. Interest rate risk The Group holds loans and other borrowings including a term loan repayable in equal instalments until 2013 and a revolving credit facility, which expires in 2013. Both facilities are denominated in Sterling and incur interest at LIBOR plus 3%. The revolving credit facility is repayable at the Groups discretion on a quarterly basis with the interest accrued, or on demand. The Group is obliged to comply with certain covenants, as detailed in the going concern disclosures. In April 2010, the Group entered into a contract to hedge two thirds of the term loan with a cap at 3.3% on LIBOR. The Directors believe this hedge limits the Groups exposure to interest rate charges to a manageable level.
50
Overview
Weighted average interest rates receivable Weighted average interest rates payable
1.10% 3.35%
1.18% 3.71%
Currency risk The Group earns very small levels of revenue from outside the UK. The value of recurring revenues is converted at each invoice date from a fixed Sterling value to a varied euro value and thereby minimising the currency risk to the Group. It is not Group policy to enter into hedging arrangements to mitigate currency risk due to the disproportionate cost versus risk. All cash and cash equivalents at 28 February 2011 were denominated in sterling. Liquidity risk Liquidity risk is the risk that the Group cannot meet financial liabilities when they fall due. The Groups policy for managing liquidity risk is to ensure that the business has enough financial resource to meet its day-to-day activities at any point in time. Management believes that the cash resources on hand, together with the profits of the business more than cover the resources needed to meet the financial liabilities of the Group. Capital management The Group manages its capital structure to safeguard the going concern of the Group and provide returns for shareholders and benefits for other stakeholders. The capital structure of the Group consists of equity (including share capital, retained earnings and other reserves) and debt. The Group entered in April 2010 into a contract to hedge two thirds of the term loan with a cap on LIBOR. The Directors believe this hedge limits the Groups exposure to interest rate charges to a manageable level. The Group may maintain or adjust capital structure by issuing new shares, returning capital to shareholders or by paying dividends. 21 Commitments Operating leases Future minimum lease payments under non-cancellable operating leases are as follows:
2011 Land and buildings 000 Plant & machinery 000 Other 000 2010 Land and buildings 000 Other 000 Business review Governance
Within one year In two to five years In more than five years
Financials
Pension Commitments The Group has no defined-benefit pension schemes in place. The Group pays defined contributions into a Group Personal Pension Plan and individual pension plans. The assets of each of these plans are held separately from those of the Group in independently administered funds. The pension charge represents contributions payable by the Group and amounted to 1.2m (2010: 0.4m).
51
Drury Lane (Jersey) Limited* Advanced Health and Care Limited** (formerly Adastra Software Limited) Advanced 365 Limited** (formerly Business Systems Group Limited) Advanced Business Software and Solutions Limited** (formerly COA Solutions Limited)
* Owned directly by Advanced Computer Software Group plc ** Owned indirectly by Advanced Computer Software Group plc
24 Share capital The Company had 354,880,592 issued and fully paid ordinary shares listed on the Alternative Investment Market of the London Stock Exchange. Of these, 17,761,651 shares are held jointly by the Employee Benefit Trust and Vin Murria. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. The Trustee of the Employee Benefit Trust and Vin Murria have agreed to abstain from voting at any general meeting in respect of the jointly owned shares.
2011 Number 000 2010 Number 000
Authorised for issue Ordinary shares of 0.10 each Allotted, called up and fully paid Ordinary shares of 0.10 each
1,000,000,000 354,880,592
100,000 35,488
1,000,000,000 354,880,592
100,000 35,488
52
Overview
24 Share capital continued During the year ended 28 February 2011, the Company issued no new shares, the equity shares remain as follows:
Number of shares 000
Shares in issue at 1 January 2008 Shares issued for cash Shares issued as consideration for acquisitions Shares issued to Employee Benefit Trust Shares in issue at 28 February 2009 Issue of share capital Shares issued for cash Shares issued as consideration for acquisitions Balance at 28 February 2010 and 28 February 2011
Business review
Share premium reserve This represents the amounts subscribed for share capital in excess of the nominal value of those shares. Merger reserve The merger reserve represents the difference between the fair value and nominal value of the 59,004,541 Ordinary shares allotted to the vendors of the new businesses acquired since August 2008. Share trust reserve Transactions of the Company-sponsored Employee Benefit trust (EBT) are treated as being those of the Company and are therefore reflected in the parent company and group financial statements. In particular, the EBTs purchases and sales of shares in the Company are debited and credited directly to equity. The share trust reserve comprises the costs of shares held by the EBT. Profit and loss account Cumulative net gains and losses recognised in the consolidated income statement. Foreign exchange reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations 25 Share options and management incentives Share option schemes During the year, the Group implemented a new Save as you Earn scheme and granted options to certain employees under the existing Enterprise Management Incentive/unapproved share option scheme. In addition, three key management personnel were invited to join the Management Participation Shares scheme. The total expense recognised for the year from share-based payments was:
2011 000 2010 000 Financials Governance
1,853
572
Enterprise Management Incentive (EMI)/unapproved share option scheme The EMI scheme was approved by HM Revenue and Customs for share options grants that fall within the EMI rules. Options granted that do not fall within the EMI rules are deemed to be unapproved share options. Under the terms of this scheme all employees and Directors of the Group are eligible to participate. The options entitle the recipient to acquire ordinary shares in the Company at an exercise price determined at the date of grant.
53
54
Overview
25 Share options and management incentives continued Save as you Earn (SAYE) The Group implemented Save as you Earn schemes, in September 2009 and August 2010. Participation in the scheme was open to all employees employed at the date of commencement of the three year scheme. All participants agreed to save a fixed amount monthly into the scheme and in return received an option to purchase shares in the capital of the Company at a discounted price at the conclusion of the scheme. The discounted share price is calculated as the market price at the commencement of the scheme less 10%. Company Share Option Plan (CSOP) CSOP share options are awarded to certain Group employees to incentivise them to positively impact the Groups performance over the medium term. The options are awarded with an exercise price equal to fair market value and shares typically cannot be exercised until three years after the date on which the option was granted. Options granted to employees who leave before the exercise date will usually lapse.
Business review
Options outstanding The number and weighted average exercise prices of share options are as follows:
2011 Weighted average exercise price (pence) 2010 Weighted average exercise price (pence) Number of options granted restated
Outstanding at the beginning of the year restated Granted during the year Movement in the number of shares required to fulfil awards made under MPO/MPS* Options expired during the year Outstanding at the end of the year
10.00 5.68
1,600,000 6,733,882
*In the case of the MPO scheme, the counterparty is required to pay 10p (or nominal price) for the share on the date when the award is settled, which is reimbursed by a further issue of shares. For the MPS/MPO schemes, the comparative has been restated and increased by 2,531,966 to reflect the correct number of shares required to fulfil the MPO scheme, as if that scheme had been exercisable at the balance sheet date.
At the year end, no options were exercisable. The fair value of all employee share schemes is measured using a binomial lattice model. Measurement inputs and assumptions are as follows: For the options granted during the year ended 28 February 2011:
Weighted average fair value of share options (pence) Weighted Weighted average average share price of share options exercise price (pence) (pence)
Expected volatility
Option life
Expected dividends
For the options granted during the year ended 28 February 2010:
Weighted average fair value of share options (pence) Weighted average share price of share options (pence) Weighted average exercise price (pence)
Expected volatility
Option life
Expected dividends
Risk-free rate
The expected volatility is based on the historic volatility adjusted for any expected changes to future volatility.
Advanced Computer Software Group plc Annual Report 2011 55
Option scheme
MPO* MPS* EMI EMI EMI EMI SAYE EMI (unapproved) EMI (unapproved) CSOP EMI (unapproved) CSOP SAYE EMI (unapproved) CSOP
23.07.08 9,203,959 30.07.08 20,098,440 14.10.08 1,500,000 100,000 19.01.10 921,500 04.06.09 320,000 08.06.09 21.09.09 2,132,383 06.01.10 1,688,312 172,078 06.01.10 06.01.10 1,499,610 18.03.10 4,225,000 18.03.10 2,215,000 13.08.10 3,658,521 23.12.10 1,939,707 463,380 23.12.10 50,137,890
4 4 10 10 10 10 10 10 10 10 10 10 10 10 10
*At 28 February 2010, the total number of shares required to settled awards under the MPO and MPS scheme was 10,039,244 and 22,521,834 respectively.
26 Subsequent events Acquisition of Open Logistix Systems Ltd On 4 March 2011, Advanced acquired 100 per cent of the issued share capital of Open Logistix Systems Ltd for 1.2m net of cash acquired with the business.
56
Notes
2011 000
2010 000
Fixed assets Investment in subsidiary undertakings Amounts owed by subsidiary undertakings Total fixed assets Current assets Debtors due within one year Debtors due after more than one year Cash at bank and in hand Deferred taxation
75,793 75,793
4 4 5
Business review
Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Capital and reserves Share capital Share premium Merger reserve Share trust reserve Capital contribution reserve Retained earnings Shareholders funds
(60) 75,793
Governance
8,9 9 9 9 9 9 9
These financial statements were approved and authorised for issue on 15 July 2011 by the board of directors and signed on its behalf by: Barbara Firth Director
Financials
57
58
Overview
3 Investments in subsidiaries
000
As at 28 February 2010 Investment in subsidiaries Share incentive charges subsidiaries As at 28 February 2011
The investment is the cost of the Companys holding in Drury Lane (Jersey) Ltd. The Company exchange its net assets to settle its investment in Drury Lane (Jersey) Ltd. The undertakings, in which the Companys has an interest at 28 February 2011 of more than 20%, either directly or indirectly, are as per note 23 of the Group financial statements. 4 Debtors
2011 000 2010 000 Business review
Amounts due within one year: Other debtors Amounts owed by subsidiary undertakings
17 17
67 618 685
Amounts due after more than one year: Amounts owed by subsidiary undertakings 5 Deferred taxation
39,159
2011 000
2010 000
Governance
Short term differences Opening balance Movement in the year Closing balance 6 Creditors: amounts falling due within one year
51 (51)
51 16 35 51
2011 000
2010 000
4 41 45
60
1,954
59
Authorised for issue Ordinary shares of 0.10 each Allotted, called up and fully paid Ordinary shares of 0.10 each
1,000,000,000 354,880,592
100,000 35,488
1,000,000,000 354,880,592
100,000 35,488
Details of the share options and share capital issued by the Company are detailed in notes 24 and 25 of the Group financial statements. 9 Reconciliation of movement in shareholders funds
Ordinary share capital 000 Share premium 000 Merger reserve 000 Capital contribution reserve 000 Share trust reserve 000 Profit and loss account 000 2011 Total 000 2010 Total 000
Opening balance Issue of share capital For cash In respect of acquisition of subsidiaries Transfer of shares to employees from EBT Costs of issuing share capital Share based payment Loss for the year Closing balance 10 Loss for the year
35,488
33,361
7,826
634
(1,954)
(908)
74,447
24,845
43,575
35,488
33,361
7,826
1,782 2,416
177 (1,777)
60
Company information
Legal form Public Limited Company Country of incorporation United Kingdom Company number 5965280 Registered address Munro House Portsmouth Road Cobham Surrey KT11 1TF Nominated advisor and joint broker Singer Capital Markets Limited 1, Hanover St London W15 1YZ Joint broker Mirabaud Securities LLP 21, St Jamess Square London SW1Y 4JP Bankers HSBC Bank Plc 8, Canada Square London E14 5HQ Auditors KPMG Audit Plc Arlington Business Park, Theale, Reading RG7 4SD Solicitors CMS Cameron McKenna LLP Mitre House 160 Aldersgate Street London EC1A 4DD
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Advanced Computer Software Group plc Munro House, Portsmouth Road, Cobham, Surrey KT11 1TF T: 01932 584 000 F: 01932 584 001 E: investor-relations@advancedcomputersoftware.com