Strategic Thought Group plc

Transcription

1 Strategic Thought Group plc Annual Report 2010

2 Contents Page Chairman s Statement 3 4 Business Review 5 7 Financial Review 8 9 Enterprise Risk Management 10 Directors and Advisors 11 Directors Biographies 12 Directors Report Remuneration Report Corporate Governance Independent Auditors Report to the Members of Strategic Thought Group plc Consolidated Statement of Comprehensive Income 26 Statements of Financial Position 27 Statements of Cash Flows 28 Statements of Changes in Equity 29 Notes to the Financial Statements Strategic Thought Group plc Registered in England: No

3 Key Points Significantly improved performance licence sales of ARM at record high Revenues up by 36% to 8.24m (2009: 6.04m) ARM licence sales up by 41% to 3.83m (2009: 2.72m) customers included Crossrail, EADS, Meridian Energy, the US Air Force and Westinghouse Electric Company LLC Services revenues up by 62% to 1.33m (2009: 0.82m) Support revenues up by 18% to 2.86m (2009: 2.42m) Loss before interest, tax, share-based payments and exceptional items ( LBITAE ) reduced by 86% to 0.27m (2009: LBITAE of 1.88m) Pre-tax loss reduced by 63% to 0.77m (2009: pre-tax loss of 2.09m) Loss per share reduced by 62% to 3.0p (2009: loss per share of 7.8p) Cash and cash equivalent balances of 1.88m (2009: 2.09m) Board remains positive about prospects +36% Total revenues up by 36% to 8.24m (2009: 6.04m) +41% Licence sales up by 41% to 3.83m (2009: 2.72m) +62% Services revenues up by 62% to 1.33m (2009: 0.82m) +18% Support revenues up by 18% to 2.86m (2009: 2.42m) 2

4 Chairman s Statement Results for the year ended 31 March 2010 demonstrate the good progress the Group has made year on year, with revenues up by 36% to 8.24m and licence sales of our risk management software, Active Risk Manager ( ARM ), reaching a record high. While it is disappointing that the slippage of two major contracts has delayed the Group s expected return to profitability in the period, results show a significant improvement on last year s performance. Additionally, we have signed some major new customers, including Crossrail in the UK and Westinghouse Electric Company LLC in the US and secured additional ARM licence sales with existing customers, including the United States Air Force and BT. During the year ARM has been recognised as the best value proposition for Enterprise Risk Management ( ERM ) by independent analysts in a report on the Enterprise Governance, Risk and Compliance marketplace and we believe that the continuing enhancements we make to our software will help to ensure that ARM remains market leading. Over the next year, we are focusing on strengthening the conversion of our sales pipeline while also controlling costs tightly. I am confident that the talent that we have within the business will take our Group back to profitability and we continue to see significant growth opportunities for the business. Financial Performance For the year to 31 March 2010, revenues rose by 36% to 8.24m compared with 6.04m last year. Licence sales of ARM increased by 41% to 3.83m, a record high (2009: 2.72m), supported by significant contract wins with the United States Air Force and EADS, the leading global aerospace and defence group. Our services business performed strongly, with revenue up by 62% to 1.33m (2009: 0.82m). This was driven by customer funded product enhancement work and corporate reports. Support revenues increased by 18% to 2.86m (2009: 2.42m). Cost of sales was higher at 3.51m (2009: 2.95m) in line with the increased services revenue. Gross profit moved forward by 53% to 4.72m (2009: 3.09m). Administrative expenses (excluding exceptional items and share based payments) were 2.82m (2009: 1.89m). This increase was due to the absorption of some of these costs in the previous year by the discontinued operations. Sales and distribution costs were 2.18m (2009: 3.08m), reflecting the adjustments made to the cost base in the second half of the previous year. Like-for-like LBITAE (loss before interest, tax, share based payments and exceptional items) reduced by 86% to 0.27m (2009: loss of 1.88m). Exceptional items were 0.31m (2009: nil) and related to reorganisation costs. The pre-tax loss decreased by 63% to 0.77m (2009: pre-tax loss of 2.09m) and the loss per share decreased by 62% to 3.0p (2009: loss of 7.8p). The Group s cash in the bank position at the year end stood at 1.88m (2009: 2.09m). The business has no short-term cash requirement but we will keep under review the benefits of a further strengthening of the balance sheet. In the meantime, the Group will continue to focus on the tight control of costs and monitor carefully the rate of new licence sales. Dividend The Board is not recommending a dividend for the year ended 31 March 2010 (2009: nil). Licence Sales As already indicated, we have made good progress in signing new ARM customers and selling additional licences to existing customers. Most notably, in October 2009, we agreed a major Phase 2 contract with the United States Air Force for US$1.8m ( 1.1m) for the roll-out of ARM, which included options for the further procurement of licences. Our contract with EADS, the leading global aerospace and defence company, to support its enterprise risk management process, was another significant agreement and other notable wins with existing customers included Raytheon, the UK Ministry of Defence, BT and the Nuclear Decommissioning Authority. New name wins 3

5 Chairman s Statement continued included Crossrail in the UK and Los Alamos National Laboratory, San Francisco Public Utilities Commission and Westinghouse Electric Company LLC in the USA as well as Meridian Energy in New Zealand. The Market Opportunity The market opportunity, which has been classified into sub-sectors, ERM ( Enterprise Risk Management ), GRC ( Governance, Risk & Compliance ) and Project Risk Management, remains significant although still relatively immature. We compete in all these areas of risk management and believe that our solutions are at the forefront of the competitive curve. Our position is supported by independent research into the Enterprise GRC market from Forrester, which cited ARM as the best value proposition for enterprise risk management (in its report, The Forrester Wave: Enterprise Governance, Risk and Compliance Platforms, Q ). Additionally, Forrester highlighted the Group s very impressive enterprise risk management implementations with demonstrable return on investment. Our challenge over the coming months, with markets recovering, is to ensure we commit appropriate resources to the growing opportunities and convert these opportunities. Strategy & Execution We believe that there are opportunities both to sign additional new customers and to expand on our work with existing clients. Our strategy is to leverage our market-leading position and customer references across our chosen sectors to build a wider list of potential deals, applying our marketing and sales resources to well qualified prospects. Operationally we will continue to roll out the 24/7 support facility we launched last year and take ARM forward on its ongoing product roadmap. The latest release of ARM, version 4, was released successfully in November 2009 and incorporated significant new functionality including ease of use, enhanced financial controls management and off-line workshop capability. Version 5 is under way now and is due to be released by the end of the current financial year. Our overriding priorities are to build revenue and deliver sustainable profits. Our Staff Strategic Thought has a tremendous team of staff and we would like to thank our employees for their ongoing dedication, commitment and hard work. The Board In April 2010, I became Executive Chairman, assuming leadership of the Group following Martin Metcalf stepping down from the Board as Chief Executive. The Board would like to express its thanks to Martin for his services to the Group and wishes him well for the future. During the year Simon Ricketts, Senior Independent Non-executive Director, retired from his position at the Annual General Meeting. The Board would like to record its appreciation and gratitude for the service that Simon has given to the Group since his appointment to the Board shortly before flotation in Outlook The Board remains positive about prospects for the financial year ending 31 March We continue to see an excellent market opportunity for our risk management software and are targeting a broader base of prospects across a range of sectors, using our customer references to demonstrate the return on investment which our risk management software achieves. We are focused on moving the Group back into sustainable profitability and look forward to reporting to you in due course on progress. Lynton Barker Executive Chairman 4

6 Business Review Our core business Strategic Thought develops, sells and supports a comprehensive market-leading risk management software product, Active Risk Manager ( ARM ). The software is used to manage enterprise-wide risks and opportunities as well as the risks associated with discrete projects, products and processes. Our markets We focus on organisations with the following characteristics: Revenues in excess of $1 billion Complex global operations Capital intensive contracts Increased regulation and compliance requirements Increased cost reduction requirements Transparency between risk, reward and corporate performance Accordingly, we concentrate on eight priority market sectors: Aerospace & Defence Construction Government Manufacturing Utilities Transport Oil & Gas Mining We look at opportunities from outside these sectors on a return on investment basis, matching the cost of sale and costs of ongoing commitment to the revenue that these opportunities afford. Our strategy Our strategy is to develop and sell ARM and related services into our chosen markets by demonstrating significant value and a clear return on investment for our customers. This differentiates ARM from competitor offerings and the business case for ARM is built in collaboration with customers based upon their needs and our assistance in setting potential performance gains. The business case for ARM is based on the following factors: Increased competitive advantage Increased certainty of outcome Transparency of risk-reward across the organisation Scope for cost base efficiencies such as the reduced cost of insurance premiums Measured reduction of potential and actual loss to the business We have sales teams in the UK and the USA with the necessary enterprise-wide selling and domain knowledge skills to sell the business case and convert our ARM sales pipeline into new customers. This is supported by our marketing function which refines market targeting and delivers the ARM value proposition to the market. 5

7 Business Review continued So far we have used our operations in the UK and USA to reach opportunities in the Middle East and Asia Pacific. As the economic case becomes compelling for opening up sales offices in these territories, we will do so. In the meantime, we will continue to look at opportunities offered in these territories based on stringent sales qualification criteria. Our competitive position There are many niche software companies in the risk market but very few have the capability to deliver beyond Governance, Risk and Compliance or other specific risk disciplines, such as Operational Risk Management. Only a handful of software companies have the basic capabilities of Enterprise Risk Management ( ERM ). We believe that ARM is unique in being able to fulfil the entire spectrum of requirements with its scalable, integrated, standards-based, real time and consolidated view of company-wide risk profiles. Our strategy and capability roadmap, based on customer needs, is designed to keep us focused and ahead of the market. We believe that we are unrivalled as a company in truly focusing on the benefits that risk management software can deliver and having the purpose and vision to anticipate the future needs of our focus industries. We not only have the most comprehensive software solution for risk but also industry experts in our team. These are acknowledged leaders and practitioners who have in-depth experience of successful large-scale risk management implementations. The essence of risk management is about culture change and our full service capability, together with our alliance partners, sets us apart. In addition, we believe our core services capabilities further set us apart by enabling us to integrate our risk management solution into our customers existing complex process infrastructures. KPIs The five Key Performance Indicators ( KPIs ) targeted over the last year appear below, together with commentary on them: KPI Deliver profit Develop partnerships to support growth Increase awareness and raise our profile in our target markets Continuous innovation to create sustainable differentiation Great place to work Commentary on achievement We have made considerable progress towards profitability and we remain focused on returning the Group to sustainable profitability. Progress has been made across all our geographies. We have signed up new partners within the emerging Middle East region and also within Europe. We have established stronger working relationships with key leaders in the sector on a sell with basis. There was progress made during the year, particularly from the increase in inbound enquiries following our strong showing in the Forrester report and after the release of ARM Version 4. The release of Version 4 of ARM brought new functionality to the market in the form of an off-line workshop capability. In addition we have delivered the first of two phases of a technically re-engineered product that keeps ARM at the forefront of technology platforms. We will continue to move the product forward. Staff turnover has been low during the year and all staff are motivated to move the Group back into profit as soon as possible, triggering the payment of bonuses. 6

8 Business Review continued Annual performance Variance % 000s 000s 000s Revenue Licences 3,828 2,722 1,106 41% Services 1, % Support 2,860 2, % Other % Total 8,237 6,040 2,197 36% Loss* (272) (1,876) 1,604 86% * Loss is the operating loss before interest, tax, share based payments and exceptional items. Revenues for the year increased by 36% to 8.24m (2009: 6.04m). ARM licences were 41% ahead of the previous year and reached a record annual high. New customers added during the year included: Crossrail (UK) Westinghouse Electric Company LLC (USA) Meridian Energy (New Zealand) Los Alamos National Laboratories (USA) San Francisco Public Utilities Commission (USA) Additional licences were sold to existing customers, among them: United States Air Force Leighton Asia Limited EADS Sandia National Laboratories Raytheon BT Nuclear Decommissioning Authority Alstom Power Thermal Systems In addition, the successful completion of software delivery for Phase 1 implementation for Rio Tinto plc took place during the year. There has been a 62% increase in services revenues to 1,337,000 in 2010 (2009: 823,000), driven by customer funded product enhancements and custom reports. Our support revenues have shown annual growth of 18% to 2,860,000 (2009: 2,422,000). The significant increase in revenues contributed to a substantially improved operating performance, and, while profitability was not reached, considerable progress was made during the year. 7

9 Financial Review Consolidated Statement of Comprehensive Income The analysis of the Consolidated Statement of Comprehensive Income has been prepared using the information provided in the table below, which separates out exceptional costs and share based payments from LBITAE. Therefore, this analysis is not the same as that in the Consolidated Statement of Comprehensive Income Variance 000s 000s 000s % Revenue 8,237 6,040 2,197 36% Cost of sales (3,514) (2,947) (567) -19% Gross profit 4,723 3,093 1,630 53% Administrative expenses (2,819) (1,886) (933) -49% Selling and distribution costs (2,176) (3,083) % LBITAE * (272) (1,876) 1,604 86% Exceptional costs (310) (310) Share based payments (185) (333) % Net finance income 121 (121) -100% Loss before income tax (767) (2,088) 1,321 63% Income tax (expense)/credit (30) 27 (57) -211% Loss from continuing operations (797) (2,061) 1,264 61% Profit from discontinued operations 41 (41) -100% Loss for the financial year (797) (2,020) 1,223 61% * LBITAE stands for losses before interest, tax, share based payments and exceptional items In the year ended 31 March 2010, revenue was 8.24m (2009: 6.04m), an increase of 36%. Accordingly gross profit grew by 53%. As anticipated, administrative expenses were ahead of the previous year at 2.82m (2009: 1.89m), due to the absorption of some of these costs in the previous year by the discontinued operations. Sales and distribution costs were 2.18m (2009: 3.08m), reflecting the adjustments made to the cost base in the second half of the previous year. Exceptional items were 0.31m (2009: nil) and related to reorganisation costs. As a consequence of the above, the pre-tax loss was 0.77m (2009: 2.09m). Losses per share and dividends Basic and diluted losses per share for the year were 3.0p (2009: losses of 7.8p). The Board is not recommending a dividend for the year ended 31 March 2010 (2009: nil). Taxation The income tax expense of 30,000 (2009: credit of 27,000) was in respect of tax due in the USA under the transfer pricing arrangements in place between the UK and USA. The Group has 1.11m (2009: 1.19m) of carried forward tax losses. This deferred tax asset has not been reflected in the Consolidated Financial Statements but is available for offset against future taxable profits. 8

10 Financial Review continued Cash and foreign exchange As at 31 March 2010, cash in the bank amounted to 1.88m (2009: 2.09m). Separate from this, the Group had 180,000 (2009: 238,000) outstanding on a loan from RBS. This loan is repayable in equal quarterly instalments over five years and is due to have been repaid by August At 31 March 2010 the Group had forward foreign exchange contracts in place to mitigate against non-sterling denominated positions held on its balance sheet. 9

11 Enterprise Risk Management Strategic Thought s internal risk management process Strategic Thought Group uses Active Risk Manager to help manage business threats and opportunities. It is used by the management team to manage corporate level risks that have been escalated through assessment at a materiality level of 5% of revenue. All risks that are greater than this risk appetite level have a mitigation strategy in place to attempt to reduce the risk to an acceptable level. The corporate risk register as at 31 March 2010 records each risk in the business having been rolled up and reassessed against the corporate risk assessment scheme. We must recognise however that some core business threats are unable to be totally mitigated due to the trade off between the cost of the mitigation strategy to do this and the step down in risk level. Last year this residual risk resulted in the non-closure of two important deals prior to the year end cut off. From a shareholder perspective we seek to optimise the cost of mitigation against the performance targets of the business and the return on investment of this assessed against the risk level. As part of the analysis that risk management offers, we have carried forward a lesson from last year's impacted risks in that we need to reduce our sensitivity to large deals closing at the year-end by increasing the volume of the deals in the sales pipeline to reduce our dependency on customer's uncontrolled actions close to the year end. Active Risk Manager is also used to manage business continuity and project risks, issues and opportunities as the services team use the software on all new implementation projects to start with a set of knowledge base risks and to supplement this by identifying, assessing and managing risks specific to the customer and project objectives. The following are seen as the highest ranking risks to the business: Insufficient new opportunities in the sales pipeline We have taken steps to increase the effectiveness of our lead generation process which drives new opportunities into the sales pipeline. In particular, we have focussed our marketing on market sectors where we have proven customer references. Additionally we have directed more of our internal resources into external lead generation. Across the company we are looking at being more flexible in our business propositions in the confidence that Active Risk Manager is a market leading software solution. Insufficient pipeline opportunities convert to licence revenue We have taken the steps outlined above to increase new opportunities in our sales pipeline which, over a period of time, will increase the number of large deals which we are trying to close. The combination of more experienced sales teams in the UK and USA, recovering economies and expansion in the product offering are all expected to help the conversion of prospects into contracts. Insufficient market to support sales targets Independent analysis of the size of the market opportunity indicates that risk management is a growing market for software solutions. We target our sales teams at those market sectors that are expected to generate sufficient opportunities to generate the licence revenue which we are seeking. 10

12 Directors and Advisors Directors L K Barker Executive Chairman A H Darby Chief Financial Officer A N Gordon*# Senior Non-executive Director P W L Morgan*# Non-executive Director * Audit Committee # Nomination and Remuneration Committee Secretary P A Rose Registered Office Star House 20 Grenfell Road Maidenhead Berkshire SL6 1EH United Kingdom Registrars Equiniti Ltd PO Box 4630 Aspect House Lancing West Sussex BN99 6QQ United Kingdom Broker FinnCap 4 Coleman Street London EC2R 5TA United Kingdom Auditors PKF (UK) LLP Pannell House Park Street Guildford Surrey GU1 4HN United Kingdom Lawyers Harrison Clark LLP 5 Deansway Worcester WR1 2JG United Kingdom Bankers Royal Bank of Scotland plc 115 High Street Epsom Surrey KT19 8DX United Kingdom 11

13 Directors Biographies Details of the Directors are as follows: 1. Lynton Barker (62) Executive Chairman Appointed to the Board in November 2008, appointed Chairman in April 2009 and Executive Chairman in April He is a Non-executive Director of Mouchel Group plc. Between 2003 and 2008 he was a director, and latterly Chairman, of Hedra plc. Prior to that he had a long career in management consultancy, having been Head of UK Consultancy for PricewaterhouseCoopers LLP and a member of its UK Main Board and European Consultancy Board. 2. Andrew Darby (47) Chief Financial Officer Appointed to the Board in August Joined Strategic Thought from Misys plc, where he was a Business Unit Finance Director within the Banking Division. He held several senior financial positions whilst at Misys, including Chief Financial Officer of Misys Risk Management Systems in California and European Financial Controller. His earlier career was at Generali SpA and English and American Group plc. He qualified as a Chartered Accountant with Coopers & Lybrand. 3. Alastair Gordon (59) Senior Independent Non-executive Director Appointed to the Board in November He was CFO of SDL plc for ten years until 2008 and remained on the board until early Prior to that he spent ten years with Berisford plc which included three years as CFO for the USA operations. His early career was spent as a Chartered Accountant with Arthur Andersen. Alastair is also a Non-executive Director of Alterian plc where he is Chairman of the Audit Committee. 4. Peter Morgan (74) Independent Non-executive Director Appointed to the Board in May He had a 30 year career with IBM where he was an Executive Director of IBM (UK) and Group Director of Marketing for IBM Europe. Former Director General of the Institute of Directors. Former member of the Council of Lloyd s. Chairman of the Association of Lloyd s Members. Member of the European Economic and Social Committee. 12

14 Directors Report The Directors have pleasure in presenting their annual report, together with the audited financial statements for the year ended 31 March 2010 set out on pages 26 to 52. Principal Activities Strategic Thought Group plc is a public limited software and services company, listed on the Alternative Investment Market ( AIM ) of the London Stock Exchange, incorporated and domiciled in England, specialising in Risk Management. It is committed to achieving customer success and market leadership. The future outlook and information that fulfil the requirements of the business review can be found in the Chairman s Statement, Business Review, Financial Review and Enterprise Risk Management Review on pages 3 to 11. Results The results include those of Strategic Thought Group plc and its subsidiaries for the full year. The loss on ordinary activities before taxation amounted to 0.77m (2009: loss of 2.09m). The loss for the year ended 31 March 2010 was 0.80m (2009: loss of 2.02m). Dividends The Directors do not recommend payment of a dividend for the year ended 31 March 2010 (2009: no dividend). Future Developments These are described in the Business Review on pages 5 to 7. Research and Development The Company has an active programme of research and development. The total research and development costs expensed for the year appear in note 4 to the financial statements. Post Balance Sheet Events In April 2010 Lynton Barker became Executive Chairman, assuming leadership of the Group following Martin Metcalf stepping down from the Board as Chief Executive. On 24 May 2010 the Group announced that it had conditionally placed 2,632,800 new ordinary shares with institutional investors at a price of 32 pence per share raising 842,496, before expenses. Directors and their Interests The following have been Directors of the Company during the year in question; Lynton Barker, Independent Non-executive Director and Chairman, Executive Chairman since April Simon Ricketts, (retired 29 June 2009) Senior Independent Non-executive Director Peter Morgan, Independent Non-executive Director Alastair Gordon, Senior Independent Non-executive Director since April Martin Metcalf, CEO Andrew Darby, CFO Martin Metcalf resigned from the Board on 16 April

15 Directors Report continued Retirement, Election and Re-election of Directors In accordance with the Articles of Association, the Director retiring by rotation at the Annual General Meeting is Peter Morgan who, being eligible, offers himself for re-election. Share Capital Details of the share capital of the Company as at 31 March 2010 are set out in note 18. All of the shares are ordinary shares and there are no restrictions on voting rights. There are no restrictions on the transfer of shares in the Company including limitations on the holding of shares. There are no requirements to obtain the approval of the Company or of other holders prior to a transfer of shares. Annual General Meeting The notice of the Annual General Meeting (AGM) will be sent separately to shareholders. The AGM will be held at on Wednesday 30 June 2010 at Strategic Thought s offices at Star House, 20 Grenfell Road, Maidenhead SL6 1EH. Policy on Payment of Creditors It is the Company and Group policy to pay invoices in accordance with the agreed terms. The average creditor days for the Group are 49 days (2009: 45 days). Substantial Shareholdings As at 25 May 2010 substantial shareholdings declared to the Company, are as follows: Nicholas Denning 20.62% Richard Higgs 13.81% Herald Investment Management Ltd 14.84% Black Rock Merrill Lynch Investment Managers 14.09% Invesco Perpetual 8.22% Octopus Investments Ltd 7.37% Financial Instruments The Group s policy on the use of financial instruments and its financial risk management procedures are disclosed in note 17. Health and Safety The Group strives to provide and maintain a safe environment for all employees, customers and visitors to its premises and to comply with relevant health and safety legislation. In addition, the Group aims to protect the health of employees with suitable, specific work-based strategies, seeking to minimise the risk of injury from Group activity and ensuring that systems are in place to address health and safety matters. The Group also encourages the involvement of employees and aims for continual improvement in health and safety matters. Corporate Social Responsibility Corporate Social Responsibility extends across every aspect of our business, from how we trade, develop our products and manage our offices, to how we treat and respect our customers, employees, neighbours and planet. Indeed, the very nature of our business is about enhancing responsibility and efficiency in business and helping customers understand their own corporate, social and ethical responsibilities. 14

16 Directors Report continued The principal corporate responsibility challenges Strategic Thought itself faces can be categorised into workplace, environmental and community issues. The key topics, which are monitored by the Board for the whole business, are: The skills and competence of the workforce and employee satisfaction and motivation; Customer service and satisfaction; Business partner and supplier relationships; Impact upon the local communities in which we work; Shareholder value; Energy use and efficiency, carbon and waste management. Employees As a knowledge based business, the talent, potential and welfare of our workforce is our number one priority. We believe our corporate values, which are co-operation and collaboration, integrity, creativity and high standards and quality, underpin our ability to achieve success. Each of these values is very human and creates the culture in which we manage the people and resources in our business. HR Management is primarily tasked with supporting our business goals by attracting, retaining and developing the most talented people available to us. We promote an open culture and encourage the involvement of all staff in the development of the business. We recognise and reward our staff for their effort and contribution towards achievement of individual objectives in support of whole Company goals. We are committed to providing our staff with good career development and training opportunities, providing fair and effective remuneration policies and rewarding employees in the success of the business. The diversity of our Company and the initiatives we have implemented for providing a flexible working environment support our principle of respect for the individual. Staff members are encouraged through HR processes to discuss their progress and their ambition with their managers, who in turn are tasked with nurturing their teams. We recruit talented people with an interest in furthering their careers and working within a professional environment. Wherever possible we develop staff and promote from within. We are an equal opportunities employer. Disabled Employees All applications for employment, including applications from disabled candidates, are treated with full, fair and equal consideration. Job offers are entirely based on merit taking into account aptitude and capability to carry out each role based on a defined job specification. The Group has an excellent reputation for recognising and making the best use of its employees skills. In the event that an employee becomes disabled, the Group would do its utmost to retain the employee by, wherever possible, providing an environment adapted for their needs. This could mean providing specially adapted working facilities, home working facilities or re-training. It is the policy of the Group that all job opportunities, career development, training and career advancement opportunities are available to all employees. Environment Our operational day-to-day activities are mostly office based, and by their nature, generally have minimal impact on the environment. However, we are keen to energetically encourage sound environmental practices. We recognise this as a responsible approach to protecting the environment and as an effective cost management practice. 15

17 Directors Report continued We maintain environmental awareness within the business by advising employees on how to modify their work practices for environmental improvement. We include our recycling practices in our employee induction programme. Management sends regular reminders to minimise, and where possible, recycle the waste materials produced in our business. We encourage all of our managers to ensure that they and their teams minimise waste and recycle wherever possible. This includes, but is not limited to: recycling paper, cardboard boxes, toner cartridges and computer hardware. We have provided recycling stations for all types of paper throughout our UK and US offices. The Company maintains a working environment which complies with all current environmental legislation including the WEEE directive. We have a relationship with a supplier to recycle our computing hardware. We actively try to minimise our transport requirements. Managers and staff are asked to consider carefully alternative ways of conducting business before travelling long distances. We make extensive use of and tele-conference facilities to avoid non-essential travel. Employee-led schemes are supported by the business (e.g. promoting energy efficiency via communication of the Carbon Trust). It is corporate policy for all non-essential computers, monitors and peripheral devices to be switched off overnight, and all lighting is switched off overnight. Statement of Directors Responsibilities The Directors are responsible for preparing the Directors report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have, as required by the AIM Rules of the London Stock Exchange, elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have also elected to prepare the parent company financial statements in accordance with those standards. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether the financial statements have been prepared in accordance with IFRSs as adopted by the European Union; and prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 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 the maintenance and integrity of the corporate and financial information included on the Company s website ( Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. 16

18 Directors Report continued Auditors So far as the Directors are aware, there is no relevant audit information, that is, information needed by the Company s auditors in connection with preparing their report, of which the Company s auditors are unaware, and the Directors have taken all steps that they ought to have taken in order to make themselves aware of any relevant audit information and to establish that the Company s auditors are aware of that information. On 23 July 2009, PriceWaterhouseCoopers LLP resigned as auditors of Strategic Thought Group plc. PKF (UK) LLP were appointed as Group auditors in their place. The auditors, PKF (UK) LLP, have indicated their willingness to continue in office, and a resolution to appoint PKF (UK) LLP as auditors to the Company will be proposed at the Annual General Meeting. Going Concern The Group s business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review on pages 5 to 7. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 8 to 9. In addition, notes 1 and 17 to the financial statements include the Group s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group has considerable financial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. By order of the Board: Andrew Darby Chief Financial Officer 25 May

19 Remuneration Report Although as an AIM listed company, Strategic Thought Group plc is not required to comply with the Combined Code 2008, this report has been prepared in accordance with the Combined Code 2008 to the extent that it is practicable and appropriate for a Group of our size. Remuneration Policy The remuneration policy of the Group is designed to attract, retain and motivate high calibre executives and professionals through competitive salary and incentive packages that are linked to both individual and Group performance. This recognises that these people are key to the ongoing success of the business. The mix of performance related and non-performance related remuneration is designed to incentivise Directors and align their interests with those of shareholders, but not to detract from the goals of corporate governance. The policies and details of these elements are given in the sections below. Remuneration Committee The Remuneration Committee is a committee of the Board of Directors and operates under the terms of reference endorsed by the Board. The Committee consists of two independent Non-executive Directors. Peter Morgan has now taken over the Chairmanship of the Committee. By invitation, the Committee is also attended by the Company Secretary, the Human Resources Director, the Chief Financial Officer and the Executive Chairman. Remuneration Information The Remuneration Committee agrees the base salary, performance bonus, share options, pension, permanent health, critical illness, life assurance, car allowances and private health benefits for Executive Directors and for the senior management team. Base Salary Salaries are assessed against the policy of being within the upper quartile for Executive Directors in comparable companies. Executive Directors salaries are reviewed in April each year. Performance Bonus Bonus entitlement is related to the performance of the Group. For the year ended 31 March 2010 no performance bonus was paid to Executive Directors. Retirement Benefits The Group provides pension contributions of 10% of annual salary to Executive Directors to invest in a fund of their choice. Other Benefits On joining the Group, Executive Directors are provided with life assurance, critical illness cover, permanent health insurance cover, private health cover and car allowances. Share Options Share options may be granted to Executive Directors at the discretion of the Remuneration Committee. Normally such grants would be made at the time of recruitment based upon Group and individual performance. 18

20 Remuneration Report continued Directors Service Contracts The Executive Directors have service contracts with notice periods of between three and six months. The Independent Non-executive Directors currently have service contracts of either three or six months notice, although it is the intention that all new contracts will have three months notice. The details of the service contracts of those who served as Directors during the year are: Contractual Contract Notice termination Name date period payments Peter Morgan 01/06/ months 6 months Simon Ricketts 25/05/ months 6 months Lynton Barker 01/11/ months 3 months Alastair Gordon 01/11/ months 3 months Martin Metcalf 18/06/ months 6 months Andrew Darby 04/07/ months 6 months Directors Remuneration for the year ended 31 March 2010 Payment in lieu Total Pension Basic Benefits Sub of emoluments Contributions Salary Fees in kind total notice s 000s 000s 000s 000s 000s 000s 000s 000s Executive M Metcalf A Darby Non-Executive L Barker A Gordon P Morgan S Ricketts Benefits in kind are calculated in terms of UK taxable values where they are not paid through the payroll. For the Executive Directors these are critical illness cover, private health insurance, pension entitlement taken in the form of salary and car allowances. Benefits in kind for Martin Metcalf included allowances for his secondment to the US operation. Payment in lieu of notice was made to Martin Metcalf after he stepped down from the Board in April Arrangements for this change were already well advanced as at 31 March 2010 and hence the costs are accrued in these accounts. Directors Interests There were no significant contracts subsisting during or at the end of the year with the Company or any of its subsidiaries, other than service contracts, detailed above, in which any Director is, or was, materially interested. 19

21 Remuneration Report continued Long Term Incentive Award The only Directors to hold a long term incentive award during the year were Martin Metcalf and Andrew Darby. Martin Metcalf held 1,200,000 (2009: 1,200,000) share options in the Company, which would have vested in six equal tranches once the Average Share Price for each tranche had been equalled or exceeded in any financial quarter. On vesting Martin Metcalf would have paid the nominal value of the share of 1p per share to receive the shares. As disclosed previously in the report, Martin Metcalf has now resigned from office and therefore no longer holds these Long Term Incentive Awards. The agreement to release these options was not concluded until after the year end and so will be reflected in next year s financial statements. Number of Share Price Tranche Shares Target 1 200, , , , , , Andrew Darby holds 300,000 (2009: 300,000) share options in the Company, which will vest in three equal tranches once the Average Share Price for each tranche has been equalled or exceeded in any Financial Quarter. On vesting Andrew Darby will pay the nominal value of the share of 1p per share to receive the shares. Number of Share Price Tranche Shares Target 1 100, , , No Director exercised a long term incentive award during the year. The market price of the Company s shares at the end of the financial year was and the range during the year was Interests in Shares The interests of the Directors in the shares of the Company were: Strategic Thought Group plc ordinary shares 1p 1 April 31 March 25 May Lynton Barker 156,250 Andrew Darby 50,000 50,000 50,000 Alastair Gordon 78,125 Martin Metcalf 50,000 50,000 50,000 Peter Morgan 170, , ,833 Simon Ricketts 12,500 12,500 12,500 All Directors interests are beneficially held. By order of the Board: Peter Morgan Chairman Remuneration Committee 20

22 Corporate Governance The Company is quoted on the Alternative Investment Market of the London Stock Exchange ( AIM ). The regulatory requirements of AIM do not require the Company to follow the Combined Code which applies to fully listed companies. Nevertheless, the Company is committed to high standards of corporate governance to the extent that it is practicable and appropriate for a Group of our size. This statement describes how some of the recommendations outlined in the Combined Code 2008 are implemented by the Group. The Board The Board comprises two Executive Directors, Lynton Barker and Andrew Darby, and two Independent Nonexecutive Directors, Peter Morgan and Alastair Gordon. The Board collectively has a wide range of relevant business, financial and international experience which is vital to the success of the Group. Each of the Directors has significant knowledge of the technology business combined with general business skills. Lynton Barker was one of three Independent Non-executive Directors until he was appointed Executive Chairman in April The Board considers that the Non-executive Directors are independent in accordance with the Code. In assessing independence, the Board weighs a number of factors including whether each Non-executive Director is objective, provides a challenge to management, is prepared to challenge the views of others, demonstrates a good understanding of the business, has the best interests of the Group in mind and has no relationships or circumstances that are likely to affect his judgement. The Code calls for the re-election of one third of the Directors at each AGM. Accordingly Peter Morgan is standing for re-election. The Board considers that Peter provides the knowledge and continuity required to help fulfil our current strategy. The Non-executive Directors fulfil a vital role in corporate accountability by bringing their independent judgement to bear on issues brought before the Board and Board committees. They bring considerable knowledge and experience from other areas of business and public life and their views carry significant weight in the Board s decisions. They also meet as a group from time to time without the Executive Directors being present to consider the performance of the Executive Directors. The Board met 15 times throughout the year and all the necessary information is supplied to the Directors on a timely basis to enable them to discharge their duties effectively. The Board has a statement of responsibilities and is presented with an agenda and supporting documentation prior to each Board meeting. It is responsible for the overall management of the Group and the approval of its long term objectives and strategy. The Board has a formal schedule of matters specifically reserved for decision by it, thus ensuring that it exercises control over appropriate strategic, financial, operational and compliance issues. At these meetings the Board reviews trading performance, ensures adequate financing, monitors strategy, examines investment and acquisition opportunities and discusses reports to shareholders. The Non-executive Directors can also take independent advice as appropriate at the Company s expense. Each Committee of the Board has written terms of reference which have each been reviewed by the relevant Committee in the last year. Board Evaluation The performance of the Board and its sub-committees is evaluated annually by the Board as a whole through completion of a formal questionnaire. The results of the questionnaire are then discussed by the Board and appropriate actions are taken. Training The Executive Chairman is responsible for ensuring that all new Board members are equipped to fulfil their duties and responsibilities. There is an induction programme for new Directors and they are kept up to date with any significant changes in the law. 21

23 Corporate Governance continued Management Committee The Board has established a Management Committee which comprises the Executive Directors together with other senior Executives of the Group. They meet once a quarter to discuss strategic and operational matters and the key issues from the meetings are presented to the Board. Remuneration and Nomination Committee The Remuneration and Nomination Committee comprises two Non-executive Directors and is chaired by Peter Morgan. It met on two occasions in the past year. It reviews the remuneration of each of the Executive Directors and sets the scale and structure of their remuneration and other benefits. The Remuneration Committee report can be found on pages The Remuneration Committee as constituted also serves as the Nomination Committee for consideration of Executive and Non-executive Director appointments. Audit Committee The Audit Committee comprises two Non-executive Directors and is chaired by Alastair Gordon. Directors and auditors attend the meetings by invitation to support the Committee in carrying out its responsibilities. The Audit Committee met twice in the last financial year. The Audit Committee is responsible for reviewing a wide range of financial matters including the interim statement and annual financial statements before their submission to the Board and monitoring controls, which are in force to ensure the integrity of the financial information reported to the shareholders. The Audit Committee reviews the appointment of external auditors and their remuneration both for audit and non-audit work and discusses the nature and scope of the audit. The Committee recognises that the independence of the Group s auditors is of paramount importance to shareholders and regularly reviews the level of non-audit work being performed by the auditors to ensure that they remain independent. The Audit Committee consults the auditors in the absence of Executive management in order to obtain independent advice. Audit and non-audit fees paid or payable to the auditors in the year under review are set out in note 4. The Group does not have an internal audit function. In the opinion of the Committee and the Board the limited scale and complexity of the business does not warrant the establishment of a separate, internal audit function. Internal Controls The Board has overall responsibility for the Group s system of internal controls. The Directors monitor the effectiveness of the Group s internal controls on an annual basis including operational, financial, compliance and risk management controls. The key controls are designed to mitigate risk rather than eliminate it and are as follows: Comprehensive financial planning and reporting and a detailed annual budget, which is approved by the Board, monthly reporting of actual results against budget and reporting against key financial and performance objectives; Monthly performance reviews by the Executive Chairman and the Management Committee; Established procedures and controls with the Group IT systems designed to protect the security of the Group data and provide disaster recovery arrangements (with annual reviews and updates); Controls for all acquisitions, investments and capital expenditure with clear authorisation levels; Maintenance of the Group s ISO 9001 accreditation driving regular internal reviews and checks and mandatory annual audits in sales and marketing, project management, health and safety, office management, environmental and human resources; 22