11th Feb 2008 07:00
Fidessa Group PLC11 February 2008 11th February 2008 Fidessa group plcPreliminary results for the year ended 31st December 2007 Fidessa reports strong organic growth and strong outlook 2007 2006 Organic Growth incl. growth LatentZeroRevenue £135.0m £94.6m 28% 43%Operating profit before acquisition amortisation £18.3m £12.4m 38% 48%Operating profit (IFRS) £16.6m £12.4m 38% 34%Adjusted pre-tax profit* £19.4m £13.8m 41%Pre-tax profit (IFRS) £17.1m £14.3m 20%Adjusted dilutedearnings per share* 38.7p 29.4p 32%Dividend per share 18.0p 13.1p 37% Numbers for 2007 include LatentZero for the period post completion. *Adjusted to remove the effect of acquisition intangibles amortisation, notional interest charge andTouchpaper loan note repayments. Organic numbers are those for the Fidessa business prior to the LatentZero acquisition. Highlights for the year ended 31st December 2007: • Strong organic growth; revenue up 28% and operating profit up 38%.• Organic recurring revenue up 34%.• Completed the acquisition of LatentZero on 27th April 2007, the first major acquisition since the group floated in 1997.• Fidessa LatentZero delivering good growth with integration progressing well.• Further progress in developing the Fidessa Connectivity Network with 58% growth.• Completed name change to Fidessa, strengthening the product branding. Commenting on these results and the current outlook, Chris Aspinwall, ChiefExecutive, said: "2007 has been a landmark year in the development of the Fidessa group. Acrossthe business we have continued to deliver strong organic growth throughout theregions, and the acquisition of LatentZero at the end of April has transformedthe company into a major vendor to the buy-side as well as to the sell-sidecommunity. In parallel, the investments we have been making to add derivativefunctionality within our sell-side product offering, coupled with themulti-asset strength of the LatentZero products, have firmly established Fidessaas a key player in cross-asset trading. During 2007, market conditions in both the buy-side and sell-side businesseshave remained strong. High levels of market activity have combined with theregulatory changes introduced as a result of RegNMS in the US (RegulationNational Market System) and MiFID in Europe (Markets in Financial InstrumentsDirective) to generate demand for high performance products and new compliancetools. The strength of our products in delivering the required functionality,combined with the market leading levels of performance they provide, haspositioned us well to benefit from these conditions. Integration of the Fidessa LatentZero products has moved forward well and LTN(the LatentZero Trading Network), which was launched in June, is already liveand supporting its first buy-side clients with orders for several hundredconnections already received. In addition, the connectivity within the FidessaConnectivity Network has continued to grow, and with 58% revenue growth during2007, connectivity is now the fastest growing area within the business. Looking ahead to 2008, we expect that demand for our services will remain strongas customers look to maximise the efficiency of their workflow in order tocontrol costs, and further fragmentation of liquidity drives widespread use ofsophisticated execution tools. In addition, we believe that the recent marketchanges will increase the pressure on both the buy-side and sell-side toimplement the market leading compliance tools that we offer. As a result, weanticipate that performance will continue to be strong across the business in2008. We expect that some of our customers may come under pressure during 2008as a result of the current market conditions, but we have yet to see any impactof this within our sales pipeline. In this respect, we shall maintain a watchingbrief throughout 2008 and will react quickly to changes in market sentiment. Looking further ahead, we are excited about the possibilities resulting from ourvision to provide cross-asset trading, market data and connectivity across boththe buy-side and sell-side. As in previous years, we will be continuing ourinvestment programme to bring more products to market, and to increase the valuewe deliver to all our customers whilst developing further shareholder valuewithin the Fidessa group." Financial Summary The financial statements include the results of Fidessa LatentZero subsequent tothe completion of the acquisition on 27th April 2007. In 2007 strong growth in revenue has been achieved with organic revenue up 28%to £121.4 million, this growth being consistent across all regions. The overallrevenue, including the eight month contribution from Fidessa LatentZero, was up43% to £135.0 million. Fidessa LatentZero delivered good revenue growth,recording an annual increase of 17%. Recurring revenue continued to provide themomentum in revenue growth, and grew organically by 34% to be 76% (2006: 72%) ofrevenue. In Fidessa LatentZero the recurring revenue was approximately 50%,which for the group as a whole resulted in recurring revenue being 72% of totalrevenue. Looking at the breakdown of recurring revenue across our areas offocus, indicative values for the year are that £61 million (2006: £48 million)arose from sell-side trading, £10 million (2006: £0 million) from buy-sidetrading, £19 million (2006: £12 million) arose from connectivity and £12 million(2006: £8 million) from market data. The deferred revenue in the balance sheetat the year end was £24.3 million (2006: £12.3 million), being 18% of 2007revenue that can be recognised in 2008. Consultancy revenue from the existingFidessa activities increased by 12% to £29.5 million. Overall, consultancy nowrepresents 26% of total revenue. Strong growth in operating profit has also been achieved. The organic operatingprofit was up 38% to £17.1 million (2006:£12.4 million). This represents anoperating margin of 14.1% for 2007, up from 13.1% for 2006. Fidessa LatentZerohas also performed well delivering an operating profit of £1.2 million with anoperating margin of 9.1%, a material improvement from being loss making inrecent years. The overall profit before tax growth was impacted by theamortisation of the acquisition intangibles of £1.8 million and the notionalinterest charge of £0.8 million, but was still strong at 20%. Excluding theseacquisition adjustments and the Touchpaper repayments is considered to provide abetter measure of underlying profitability and resulted in profit before tax of£19.4 million (2006: £13.8 million), an increase of 41%. As anticipated in the interim report, the effective tax for the year hasincreased and is 32.1%. The notional interest charge represented 1.6% of thischarge and was not deductible for tax. The group has significant tax deductiblesrelating to share incentives that are recognised direct to reserves, rather thanthrough the income statement, which leads to the cash tax providing a betterindication of the underlying tax rate. The cash tax rate was 18.0% for 2007, animprovement from 19.6% in 2006. Diluted earnings per share, adjusted to exclude the notional interest charge,amortisation of acquisition intangibles and Touchpaper repayments, which thedirectors believe provides a better indication of the performance of thebusiness, were 38.7 pence for the year, an increase of 32% from 29.4 pence for2006. The IFRS diluted earnings per share were 33.5 pence (2006: 30.9 pence), anuplift of 8%. The Fidessa LatentZero acquisition has delivered a small increasein earnings per share in the year, compared to an expectation that theacquisition would be earnings neutral. The total dividend is being increased by 37% to 18.0 pence. The final dividend,if approved by shareholders, will be 12.0 pence, to be paid on 2nd June 2008 toshareholders on the register on 2nd May 2008. The ex-dividend date will be 30thApril 2008. The business continues to be strongly cash generative closing the year with netcash of £24.8 million (2006: £40.0 million), with the major outflow in the yearbeing £26.3 million for the acquisition of Fidessa LatentZero. The net cashgenerated from operating activities was £35.7 million, representing an operatingcash conversion rate of almost 200%. Staff numbers have increased through the acquisition and also to service therevenue growth and investment programmes. Over 20% of staff continues to bededicated to product development. The average headcount for the period was1,027, up 42% from 722 in 2006. Staff numbers at 31st December 2007 hadincreased to 1,160 from 850, an increase of 36%. Operations Sell-side Trading Market conditions have remained strong for sell-side trading systems throughout2007 with increased trading volumes and a rapidly changing market and regulatoryframework. This has caused our customers to expand their capabilities into newmarkets, new regions and new asset-classes, whilst improving their compliancemonitoring and offering more comprehensive services to their clients. As aresult, we have seen strong demand for Fidessa around the world with nearly 50new clients signing for our trading systems during 2007. At the same time, manyexisting clients have extended the services they take from us in order to meetthe market demands, enabling us to develop the business further. For sell-side firms, 2007 has been dominated by changes in market structure andcompliance requirements, first with the implementation of RegNMS in the USfollowed closely by MiFID in Europe. Both of these changes have altered thecentral market structure and we believe they will continue to cause changes tothe way in which the financial markets are traded for the next few years. InEurope alone, more than 40 clients took components of the Fidessa MiFID suitewhich covers compliance, client classification and smart order routingcapabilities, as well as upgrades to existing exchange gateways and data feeds,and links to new trading venues. Fidessa's Execution Policy, Order Complianceand Handling service secured well over 30 advance sales, and this trading andmarket data repository will form the basis of a number of further productreleases during 2008. In the US the changes caused by RegNMS resulted in thepredicted increase in the number of liquidity venues, particularly with respectto dark pools, although regional markets have not benefited as much asoriginally expected. In Canada we have continued to make progress with fouradditional sales of our Canadian trading platform which was launched at the endof 2006, and we believe we are rapidly establishing a reputation as a premiersupplier to this market. Changes in the markets and the current market conditions are resulting inincreased interest in Asian markets from our international customers. During2007 we have seen a number of these customers setting up operations in the Asiaregion and this has resulted in increased demand for our Asian tradingsolutions. In response, many of the Asian markets are also updating their marketregulations and central systems allowing alternative trading systems and darkpools to establish in the regions. In parallel, the volumes of trading and thelevel of trading sophistication on the core Asian markets, such as Tokyo, havecontinued to rise, further fuelling demand for the kind of products that weoffer. Derivatives remains one of the fastest growing sectors within global capitalmarkets and has been particularly important with the volatility seen in theglobal markets recently. Regulatory changes have also been making it easier forinvestors to hold derivatives within their portfolios which has helped toaccelerate asset class convergence. This has been seen among a number of theexchanges, such as NYSE/Euronext merger and Deutsche Borse/ISE, where themergers are leading to the creation of a number of global, multi-assetexchanges. During 2007 Fidessa's multi-asset class sell-side solution hascontinued to develop with more derivatives markets connected and six new salesof derivative functionality across the sell-side customer base. During 2007 we have seen more firms interested in taking additional consultancyaround their trading platform in order to gain competitive advantage from a morecustomised service. We now believe that the market for this type of solution maybe larger than we had previously thought and there could be over 300 firmsglobally that would be interested in pursuing this approach. Looking forward to 2008, we expect that many of the themes we have seen in 2007will continue. In particular, we expect to deliver more elements of ourcompliance solutions, expand our market and regional coverage and extend ourmulti-asset class support. These elements will work hand in hand with extensionsto our connectivity network and market data services and the expansion andintegration of our buy-side offerings. Buy-side Trading The market for buy-side software continues to be strong. With the recent marketvolatility and increasing pressure on fund performance, many funds are lookingbeyond equities in search of portfolio returns. Fidessa LatentZero's fullcross-asset class support positions the products well to take advantage of thistrend. The increase in the use of OTC derivatives in particular continues, andFidessa LatentZero's investment in this functionality over the past two yearsnow differentiates the products from competitors. As a result, a number ofFidessa LatentZero's existing customers have also chosen to implement thederivatives module. The introduction of MiFID in Europe is driving asset managers to review theirfront office processes as regulators start to enforce the new operationalrequirements, which took effect in November 2007. MiFID, along with FidessaLatentZero's knowledge of local European markets, has resulted in a number ofnew sales across the European region. The buy-side adoption of electronic trading is also accelerating, with robustconnectivity between buy-side and sell-side a fundamental component. TheLatentZero Trading Network, underpinned by the established Fidessa ConnectivityNetwork, is gaining momentum, with the first customers now live, and severalmore in Europe and North America going into production in the first quarter of2008. The continued adoption of algorithmic trading and DMA (direct marketaccess) is driving demand for more trading functionality within Order ManagementSystems and Fidessa LatentZero is the only vendor with a combined "OEMS" productthat provides both order management and trading capability. In addition toinstitutional asset managers, the OEMS has attracted the interest of hedgefunds, where Fidessa LatentZero is now engaged in implementations in both NorthAmerica and Europe. Fidessa LatentZero was selected as the company to watch atthe Financial-i Leaders in Innovation Awards for its Minerva OEMS. A panel ofindependent judges concluded that "Fidessa LatentZero has shown an ongoingcommitment to innovation that has significantly benefited clients". Advanced Trading Tools The increasing number of trading venues offering diverse pools of liquiditycoupled with the growing demand for more complex and sophisticated tradingstrategies has created a growing need for advanced trading tools. This markethas expanded to the extent that Fidessa now offers a suite of advanced tradingtools that integrate with our trading products and can meet the complex demandsof our customers in this area. In 2007 we continued the roll-out of Fidessa BlueBox, our algorithmic tradingengine, with launches of the solution in Europe and Asia. Fidessa BlueBoxsupplements our existing Pairs, List and Wave trading tools to provide theworld's first AMS (Algorithmic Management System) which combines an algorithmictrading solution that is fully-integrated with the client's trading and ordermanagement system. Fidessa BlueBox has proved very popular with the marketplacein 2007 and we now have over 30 clients contracted for it globally. We continueto see a strong pipeline for Fidessa BlueBox for 2008, and we may also belooking at the implementation of a partner programme where we provide anindependent and flexible environment through which third-party consultants candevelop and offer their own bespoke algorithms to the marketplace. The regulatory changes of MiFID and RegNMS in Europe and the US respectivelyhave fuelled the growth of new trading venues and pools of liquidity and assuch, the need to hunt down liquidity and trade across multiple venues is nowmore important than ever. To facilitate this, we have continued to expand ourprice display and order routing capabilities to provide a comprehensivecross-market solution, leveraging off our experience in North America. Thisallows clients to see a virtual market encompassing all available liquidity foran instrument in one consolidated display, and then to smart-route orders tomultiple venues, based on user defined criteria, in one simple action. This canalso combine with the next generation of algorithms which allow sweeping of bothopaque and displayed markets. Fidessa is now at the forefront of providing advanced trading tools to ourtarget marketplace, and during 2008 we expect that demand for these tools willcontinue to evolve and grow, and we believe we are well placed to capitalise onthese new opportunities as they arise. Market Data The ability to offer a fully integrated, low latency, market data service withinour trading applications has rapidly become a key strength of our product setand differentiates us from many of our competitors around the world. The growthof advanced trading activities, such as algorithmic trading in particular, hasfuelled the need for a fast and comprehensive data service that is tightlyintegrated into our trading solutions. These sophisticated trading strategiestypically monitor and act on market price movements, which is why speed andreliability of data is so vital. The changing market landscape is also creating new demands for market datarelated services and we are well placed to capitalise on these as they occur. In2007 we saw the start of new regulations in Europe resulting from MiFID whichplaces various obligations on participants in the financial markets in thatregion. In support of these we have extended our market data capabilities inseveral areas and launched a number of data related services. For example, onekey aspect of MiFID requires brokers to seek out the best price from acrossmultiple trading venues for an instrument and to keep evidence of resultingtrades along with proof that they complied with the execution policy agreed withtheir clients. In support of this we now offer users a consolidated view acrossmultiple markets allowing them to find available liquidity quickly and toidentify the best price. Additionally, we offer a market data capture andstorage service that records the prevailing market prices at the time the tradeis done, thus allowing our customers to comply with the regulation anddemonstrate adherence to their execution policy. In 2007 we continued to invest in our market data systems to ensure they remainbest of breed in terms of performance and reliability. Use of the latesttechnology is key to achieving this and we continue to keep our state-of-the-artsolution at the forefront of what is available. As well as conducting our owntests, one of our leading clients has carried out its own extensive performanceand latency tests, independently verifying that our offering is indeed a marketleading solution. Our investment in our market data systems will continue in2008 to ensure we remain a leading supplier in this area and to ensure oursolution continues to scale as data volumes from world markets increase. During the last 12 months we have also continued to expand our global breadth ofcoverage, extending the asset classes we cover with the addition of USderivatives and commodity markets as well as adding to the list of exchanges wecover in the Asia Pacific and Eastern European regions. Regulatory changes suchas MiFID and RegNMS have fuelled the emergence of new alternative trading venuesand we have added a number of these from across Europe and North America. Thisinvestment in coverage is an on going process that will continue through 2008. Our market data service was honoured with the "Systems in the City" BestInformation Service award for the third successive year in 2007, and the numberof users taking market data from us grew by around 40%. Connectivity As the level of electronic trade flow continues to increase, a comprehensive andreliable connectivity service is becoming an ever more essential part of theglobal trading environment. In part this is driven by the buy-side investmentcommunity looking for broader market coverage and the ability to use more assetclasses, but is also driven by the sell-side brokers developing new systems toallow them to offer more services. The growth of DMA and algorithmic tradingengines are just two examples of the increasingly sophisticated services thatmore and more brokers are now offering. Buy-sides are also demanding the ability to trade with a broad range of brokersaround the world so that they can use the services offered by the smaller nicheplayers, who provide local expertise and specialisation, as well as the largerbrokers providing global market reach. The brokers themselves want connectivitythat can give them access to as large a buy-side audience as possible.Additionally, they then need links to all the exchanges and other liquidityvenues on which they wish to trade. Providing and maintaining all this connectivity whilst ensuring any solution cancope with the growth in trading volumes, is now a specialised skill and weexpect that the demand for comprehensive, proven connectivity solutions willcontinue to grow. Based on the public domain FIX (Financial InformationeXchange) protocol and operated from our dedicated data centres around theworld, the Fidessa connectivity network has become one of the leading solutionsmeeting the connectivity requirements of the financial markets community. Withconnectivity prices starting from only $250 a month, we also believe we have oneof the most competitive connectivity solutions in the market. Following thelaunch of LTN for the buy-side (which is underpinned by the Fidessa connectivitynetwork), we are now able to offer a managed connectivity solution which fullyintegrates into the buy-side and sell-side product suites. This ability to offerintegrated access to both sides is unique to our business and is a significantcompetitive advantage. In 2007 we have continued to expand the number of brokers providing tradingservices on our network, with over 250 firms offering an increasingly diverseand sophisticated range of solutions for trading around the globe. The buy-sidecommunity on our network has grown too over the last year and now stands ataround 1,500 firms. Traffic on the Fidessa connectivity network has increasedalmost threefold and we now carry close to 100 million messages a month fromover 5,000 client connections. We are also seeing significant growth in thederivatives flow across our network as part of our multi-asset initiative, and agrowing number of brokers now support this flow as well. In addition to the growth in buy-side to sell-side connectivity, regulatorychanges in Europe (MiFID), the US (RegNMS) and in several Asian countries havespawned a host of new liquidity venues, from crossing services to dark pools. Asa result, we have added 20 new trading gateways to the Fidessa service in thelast 12 months. The growth in the Fidessa connectivity network has made connectivity the fastestgrowing element within our business. We expect this will continue in 2008, withfurther buy-side and sell-side firms joining our connectivity solution andincreasing volumes of transactions being sent across our network. LatentZero Acquisition On 27th April 2007 Fidessa completed the acquisition of LatentZero. Formed in1999 and headquartered in the UK, LatentZero is a leading supplier offront-office software to the asset management industry and counts several of theworld's largest asset management firms amongst its clients. With offices inLondon, Boston, New York and Paris, LatentZero provides software for fundmanager decision support, order management, execution management and investmentcompliance. LatentZero has set new standards for investment systems through itsunique combination of business knowledge, market vision and technologyinnovation and its products are used to manage more than $8 trillion of assets,across equity, fixed income, foreign exchange and derivatives. This acquisitionprovides considerable strategic benefit to Fidessa, LatentZero and theirrespective customers by providing, for the first time, the potential for trueintegration of multi-asset buy-side and sell-side trading flows on a significantscale. Furthermore, with the buy-side increasingly requiring sell-side styletrading tools integrated into their investment and order management processesand the sell-side striving to deliver enhanced execution solutions to theircustomers, both Fidessa and LatentZero will be able to leverage the other'sservices within their own customer base. Integration of the businesses has progressed well with the Fidessa LatentZerobuy-side brand already becoming established in the market. The FidessaLatentZero products have continued to enjoy considerable success in the marketsextending the range of customers from the largest buy-side firms to now includehedge funds. The multi-asset nature of the products has been instrumental inmaking progress in the hedge fund space. Building on the global base of Fidessawe have also launched several new areas of integration including LTN, which israpidly becoming established as the de-facto connectivity solution within ourbuy-side customer base. In addition, we have integrated our EMS technologies,allowing the provision of an integrated OEMS as well as a stand alone EMSsolution and Fidessa market data is also available in the Fidessa LatentZeroproduct set. We are continuing to look at opportunities in Asia, where webelieve there is substantial potential interest in the Fidessa LatentZeroproducts and where Fidessa already has a well established base. We are alsoinvestigating possible demand for a hosted buy-side solution, leveraging off thehosting services provided by Fidessa, which we believe may be an increasinglyattractive option in the current market conditions. Going forward we believe that the growing sophistication of both the buy-sideand the sell-side coupled with increasing regulatory burdens will continue tofuel demand for automation of business flows on both sides. Additionally, webelieve there will be a growing need for rapid communication and additionalinformation flow between the two sides as well as increasing access toalternative liquidity venues and trading strategies. Through the strength of itsproducts on both the buy-side and sell-side, we believe that Fidessa will beideally placed to meet this demand. Lava Patent Lawsuit The Annual Report for the year ended 31st December 2006 included a summary ofthe history of the patent infringement claim brought by Lava Trading Inc1. Inthis summary we confirmed that our view from the outset remains unchanged inthat we believe the case brought by Lava is without merit and we re-affirmedthat we would continue to defend our position vigorously. Our view as to themerit of the case and our defence of it are unchanged. The process of discovery,which we noted in the 2006 Annual Report had re-started, is continuing and weare advised that in cases of this nature this process can take a significantperiod of time. 1 Lava Trading Inc was acquired by Citigroup Inc in 2004. Employees On behalf of all Fidessa's shareholders the Board would like to extend itssincere thanks to all employees. The strength and breadth of the Fidessa andFidessa LatentZero product ranges and their important position in today'sfinancial markets are a testament to their skill and dedication. Outlook Looking ahead to 2008, we expect that demand for our services will remain strongas competition continues between market participants and customers look tomaximise the efficiency of their workflow in order to control costs. We alsoexpect that as a result of the structural changes seen within the markets in2007, there will be further fragmentation of liquidity requiring widespread useof sophisticated execution tools within both the sell-side and buy-side. Inaddition, we believe that the recent market changes will increase the pressureon customers to implement the market leading compliance tools and services weoffer both the buy-side and sell-side. As a result, we anticipate thatperformance will continue to be strong across the business in 2008. We expectthat some of our customers may come under pressure during 2008 as a result ofthe current market conditions, but we have yet to see any impact of this withinour sales pipeline. In this respect, we shall maintain a watching briefthroughout 2008 and will react quickly to changes in market sentiment. Looking further ahead, we believe that our strategy of providing a globalintegrated solution for cross-asset trading, market data and connectivity acrossboth the buy-side and sell-side leaves us in a unique and valuable position inthe market. We remain excited about the opportunities we see in both thebuy-side and sell-side as well as in the potential to develop new integratedservices which touch both sides. As in previous years, we will continue ourinvestment programme to bring more products to market, and to increase the valuewe deliver to all our customers whilst developing further shareholder valuewithin the Fidessa group. enquiries: Chris Aspinwall, Chief Executive Edward Bridges/Hazel Stevenson, Financial DynamicsAndy Malpass, Finance Director Tel: 020 7831 3113 Fax: 020 7831 6341www.fidessa.comTel: 01483 206300Fax: 01483 206301 Consolidated Income Statement for the year ended 31st December 2007 2007 2007 2007 2006 Brought Acquisition Total Total forward activities Note £'000 £'000 £'000 £'000Revenue 2 121,402 13,627 135,029 94,637 Operating expenses beforeamortisation of acquisitionintangibles 3 (104,703) (12,392) (117,095) (82,754)Other operating income 376 - 376 470 Operating profit beforeamortisation of acquisitionintangibles 17,075 1,235 18,310 12,353Amortisation of acquisitionintangibles (1,755) - Operating profit 16,555 12,353 Finance income 5 1,393 1,941 Finance cost - bank and other (32) -Finance cost - notional intereston contingent consideration (847) -Total finance cost (879) - Profit before income tax 17,069 14,294Income tax expense 6 (5,472) (3,983)Profit for the year 11,597 10,311 Basic earnings per share 7 34.4p 31.9pDiluted earnings per share 7 33.5p 30.9p Interim dividend paid 11 6.0p 4.3pFinal dividend proposed 11 12.0P 8.8pTotal dividend proposedfor the year 11 18.0P 13.1p Consolidated Balance Sheet at 31st December 2007 2007 2006 Note £'000 £'000AssetsNon-current assetsProperty, plant and equipment 14,290 9,828Intangible assets 10 77,318 9,922Deferred tax assets 2,984 3,711Other receivables 898 898Total non-current assets 95,490 24,359 Current assetsTrade and other receivables 8 36,413 20,940Income tax receivable 304 261Cash and cash equivalents 24,820 40,069Total current assets 61,537 61,270 Total assets 157,027 85,629 EquityIssued capital 3,463 3,356Share premium 16,488 15,715Merger reserve 9,298 -Cumulative translation adjustment (1,459) (1,466)Retained earnings 44,147 36,841Total equity 71,937 54,446 LiabilitiesNon-current liabilitiesContingent consideration 10 11,759 -Other payables 604 719Deferred tax liabilities 6,810 931Total non-current liabilities 19,173 1,650 Current liabilitiesContingent consideration 10 12,447 -Trade and other payables 9 51,527 27,686Current income tax liabilities 1,943 1,847Total current liabilities 65,917 29,533 Total liabilities 85,090 31,183 Total equity and liabilities 157,027 85,629 Consolidated Statement of Changes in Shareholders' Equity Note Issued Share Merger Translation Retained Total capital premium reserve reserve earnings equity £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1st January 2006 3,272 11,743 - (51) 27,241 42,205 Profit for the period fromthe income statement - - - - 10,311 10,311Currency translationAdjustments - - - (1,415) - (1,415)Total income and expensefor the period - - - (1,415) 10,311 8,896 Issue of shares - exerciseof options and warrants 84 3,972 - - - 4,056Employee share incentivecharges 3 - - - - 735 735Current tax recogniseddirect to equity 6 - - - - 390 390Deferred tax recogniseddirect to equity 6 - - - - 1,428 1,428Sale of own shares byemployee share trust - - - - 391 391Dividends paid 11 - - - - (3,655) (3,655)Balance at 1st January 2007 3,356 15,715 - (1,466) 36,841 54,446Profit for the period fromthe income statement - - - - 11,597 11,597Currency translationadjustments - - - 7 - 7Total income and expensefor the period - - - 7 11,597 11,604 Issue of shares - acquisition 10 85 - 9,298 - - 9,383Issue of shares - exerciseof options 22 773 - - - 795Employee share incentivecharges 3 - - - - 809 809Current tax recogniseddirect to equity 6 - - - - 841 841Deferred tax recogniseddirect to equity 6 - - - - (871) (871)Purchase of own shares byemployee share trust - - - - (514) (514)Sale of own shares byemployee share trust - - - - 482 482Dividends paid 11 - - - - (5,038) (5,038)Balance at 31st December 2007 3,463 16,488 9,298 (1,459) 44,147 71,937 Consolidated Cash Flow Statement for the year ended 31st December 2007 2007 2006 Note £'000 £'000Cash flows from operating activitiesProfit before tax 17,069 14,294Adjustments for: Staff costs - share incentives 3 809 735 Product development amortised 3 7,432 5,026 Depreciation of property, plant and equipment 3 6,008 4,458 Amortisation of acquisition intangibles 3 1,755 - Amortisation of other intangible assets 3 471 367 (Gain)/loss on sale of property, plant and equipment 3 (38) 32 Finance cost 879 - Finance income 5 (1,393) (1,941)Cash generated from operations before changesin working capital 32,992 22,971Movement in trade and other receivables (8,715) (2,715)Movement in trade and other payables 14,475 8,031Cash generated from operations 38,752 28,287Income tax paid (3,073) (2,801)Net cash generated from operating activities 35,679 25,486 Cash flows from investing activitiesAcquisition of LatentZero (net of cash acquired) 10 (26,261) -Purchase of property, plant and equipment (9,318) (6,210)Proceeds from sale of property, plantand equipment 54 8Purchase of other intangible assets (1,303) (473)Product development (11,024) (6,874)Interest received 1,152 1,366Proceeds from capital repayment of Touchpaper"B" Loan Note 5 300 500Net cash used in investing activities (46,400) (11,683) Cash flows from financing activitiesProceeds from shares issued 795 4,056Purchase of own shares by employee share trust (514) -Proceeds from sale of own shares by employeeshare trust 482 391Repayment of borrowings (292) -Interest paid (32) -Dividends paid 11 (5,038) (3,655)Net cash (used)/generated in financing activities (4,599) 792Net (decrease)/increase in cash and cash equivalents (15,320) 14,595Cash and cash equivalents at 1st January 40,069 26,120Effect of exchange rate fluctuations on cash held 71 (646)Cash and cash equivalents at 31st December 24,820 40,069 Notes To The Consolidated Financial Statements 1 Basis of preparation These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) adopted for use in the European Union. The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31st December 2007 or 2006. Statutoryaccounts for 2006 have been delivered to the registrar of companies, and thosefor 2007 will be delivered in due course. The auditors have reported on thoseaccounts; their reports were (i) unqualified, (ii) did not include references toany matters to which the auditors drew attention by way of emphasis withoutqualifying their reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2 Segment reporting The Group operates in one business segment; that of supply of software tofinancial institutions. The operations are monitored by the geographic regionsof Europe, North America and Asia. Certain activities and costs are managed andmonitored centrally. Tax assets and liabilities, intangible assets resultingfrom acquisitions and the intangible asset for product development capitalisedare excluded from segment assets and liabilities. The segment information inrespect of the regions is presented below. North For the year ended 31st December 2007 Europe America Asia Total £'000 £'000 £'000 £'000 Segment revenue 69,211 49,522 16,296 135,029 Segment result 12,837 8,578 7,667 29,082 Product development amortised (7,432) Acquisition intangibles amortised (1,755) Central costs (3,340) Operating profit 16,555 Capital additions 6,566 4,400 841 11,807 Depreciation and amortisation 3,533 2,445 501 6,479 Segment assets 44,376 25,799 7,594 77,769 Unallocated assets 79,258 Consolidated total assets 157,027 Segment liabilities 56,697 17,258 2,382 76,337 Unallocated liabilities 8,753 Consolidated total liabilities 85,090 North For the year ended 31st December 2006 Europe America Asia Total £'000 £'000 £'000 £'000 Segment revenue 48,746 32,610 13,281 94,637 Segment result 9,680 4,280 6,293 20,253 Product development amortised (5,026) Central costs (2,874) Operating profit 12,353 Capital additions 3,955 2,019 709 6,683 Depreciation and amortisation 2,664 1,791 370 4,825 Segment assets 51,985 14,078 6,190 72,253 Unallocated assets 13,376 Consolidated total assets 85,629 Segment liabilities 18,683 8,502 1,220 28,405 Unallocated liabilities 2,778 Consolidated total liabilities 31,183 3 Operating expenses 2007 2006 £'000 £'000 Staff costs - salaries 60,143 43,161 Staff costs - social security 5,639 4,355 Staff costs - pension 486 - Staff costs - share incentives 809 735 Total staff costs 67,077 48,251 Amounts payable to subcontractors 4,092 2,901 Depreciation of property, plant and equipment 6,008 4,458 Amortisation of other intangible assets 471 367 Product development capitalised (11,024) (6,874) Product development amortised 7,432 5,026 Communications and data 20,276 13,239 Operating lease rentals - property 4,317 3,556 Operating lease rentals - plant and machinery 57 27 (Gain)/loss on sale of property, plant and equipment (38) 32 Exchange losses 320 626 Other operating expenses 18,107 11,145 Operating expenses before amortisation of acquisition intangibles 117,095 82,754 Amortisation of acquisition intangibles 1,755 - Total operating expenses 118,850 82,754 Other operating income represents income from sublet office space. Included in operating expenses are the direct costs of research and developmentof £20,510,000 (2006 £12,265,000), which includes the amount capitalised above. 4 Staff numbers The average number of people employed by the Group during the year was asfollows: 2007 2006 Number Number Europe 559 398 North America 358 257 Asia 110 67 Total average staff numbers 1,027 722 At 31st December At 31st December 2007 2006 Number Number Technical 619 479 Product development 260 175 Sales and marketing 128 79 Management and administration 153 117 Total staff numbers at 31st December 1,160 850 5 Finance income 2007 2006 £'000 £'000 Interest receivable on cash and cash equivalents 1,019 1,132 Interest received on Touchpaper "A" and "B" Loan Notes 70 290 Other interest receivable 4 19 Capital repayment of Touchpaper "B" Loan Notes 300 500 Total finance income 1,393 1,941 6 Income tax expense 2007 2006 £'000 £'000 Current tax expense: Current year domestic tax 675 1,453 Current year foreign tax 3,219 2,283 Adjustments for prior years (27) 122 Total current tax expense 3,867 3,858 Deferred tax expense: Origination and reversal of temporary differences 1,120 (421) Adjustments to UK taxation rate in respect of prior periods (40) - Benefit and utilisation of tax losses 525 546 Total deferred tax expense 1,605 125 Total income tax expense in income statement 5,472 3,983 Reconciliation of effective tax rate 2007 2007 2006 2006 £'000 £'000 Profit before tax 17,069 14,294 Income tax using the domestic corporation tax rate 30% 5,121 30% 4,288 Effective tax rates in foreign jurisdictions 901 439 Expenses not deductible for tax purposes 135 195 Tax incentives (757) (516) Adjustments to UK taxation rate in respect of prior periods (40) - Tax credits utilised - (249) Non-taxable items 139 (296) Adjustment relating to prior years (27) 122 Tax expense and effective tax rate for the year 32% 5,472 28% 3,983 Tax recognised directly in equity 2007 2006 £'000 £'000 Current tax credit relating to equity settled share incentives (841) (390) Deferred tax debit/(credit) relating to equity settled share incentives 871 (1,428) 7 Earnings per share Earnings per share have been calculated by dividing profit attributable toshareholders by the weighted average number of shares in issue during the year,details of which are below. The diluted earnings per share have been calculatedusing an average share price of 1037p (2006 845p) for the year. 2007 2006 £'000 £'000 Profit attributable to shareholders 11,597 10,311 Add amortisation of acquisition intangibles 1,755 - Less deferred tax on amortisation of acquisition intangibles (526) - Add notional interest on contingent consideration 847 - Less gain relating to capital repayment of Touchpaper "B" Loan Notes (300) (500) Profit attributable to shareholders excluding amortisation of acquisition intangibles, notional interest and capital repayment 13,373 9,811 2007 2006 Number '000 Number '000 Weighted average number of shares in issue 34,264 33,026 Weighted average number of shares held by the employee trusts (544) (711) Shares used to calculate basic earnings per share 33,720 32,315 Dilution due to share options and warrants 872 1,037 Shares used to calculate diluted earnings per share 34,592 33,352 Basic earnings per share excluding amortisation of acquisition intangibles, notional interest and capital repayment 39.7p 30.4p Diluted earnings per share excluding amortisation of acquisition intangibles, notional interest and capital repayment 38.7p 29.4p Basic earnings per share on amortisation of acquisition intangibles, notional interest and capital repayment (5.3)p 1.5p Diluted earnings per share on amortisation of acquisition intangibles, notional interest and capital repayment (5.2)p 1.5p Basic earnings per share 34.4p 31.9p Diluted earnings per share 33.5p 30.9p 8 Trade and other receivables 2007 2006 £'000 £'000 Trade receivables 29,637 16,739 Amount due from subsidiaries - - Prepayments 3,375 1,973 Accrued revenue 1,545 1,184 Other receivables 1,856 1,044 Total trade and other receivables 36,413 20,940 9 Current liabilities; trade and other payables 2007 2006 £'000 £'000 Trade payables 4,048 2,176 Amount due to subsidiaries - - Accrued expenses 20,170 11,084 Deferred revenue 24,286 12,276 Other taxes and social security 3,023 2,150 Total trade and other payables 51,527 27,686 10 Business combination On 27th April 2007 the Group completed the acquisition of 100% of the equity ofLatentZero Limited, a world leading solution provider for multi-asset tradingsystems, for a total consideration of up to £62.3 million (including £1.5million of related costs and net of £1.6 million of discounting of thecontingent consideration). Consideration of £37.4 million was paid oncompletion, comprising £28.0 million of cash and £9.4 million of ordinary sharesin Fidessa group plc; 852,239 shares were issued at a fair value of 1101p each,being the closing mid-price on 27th April 2007. Further contingent considerationof £25.0 million is expected to be paid and is dependent on the achievement ofperformance objectives related to revenue, operating profit and order intake in2007 and 2008. The total contingent consideration comprises £15.5 million ofcash and £9.5 million of ordinary shares in Fidessa group plc. The contingentconsideration has been discounted by £1.6 million, the unwinding of which willbe charged as notional interest in the income statement over the period up tosettlement. If this acquisition had completed on 1st January 2007, the start of the periodbeing reported in these financial statements, the consolidated results for theGroup would have been revenue of £141,436,000, operating profit before shareincentive charges in LatentZero and amortisation of acquisition intangibles of£18,270,000 and an operating profit of £16,248,000. The goodwill arising on the acquisition results from the value of the assembledworkforce, the synergistic nature of the acquisition due to cross-sellingopportunities between the buy-side and sell-side clients, potential costsavings, and the expected future growth. Identifiable intangibles relate to the value of LatentZero's customerrelationships, brands and other marketing related intangibles and completetechnology. The investment in LatentZero has been consolidated into the balance sheet at itsfair value at the date of acquisition. These fair values are provisional andwill be amended as necessary in light of subsequent knowledge or events to theextent that these reflect conditions as at the date of acquisition. Book Fair value values to Group £'000 £'000 Intangible assets (excluding goodwill) 2,704 17,600 Property, plant and equipment 919 1,186 Deferred tax assets/(liabilities) 892 (4,084) Current assets 8,016 8,016 Cash and cash equivalents 3,286 3,286 Liabilities (10,845) (10,845) Net assets 4,972 15,159 Goodwill arising on acquisition 47,129 Total consideration 62,288 Satisfied by: Cash consideration 28,023 Shares issued 9,383 Provision for future consideration payable 23,358 Directly attributable costs 1,524 62,288 Net cash outflow arising on acquisition: Cash consideration paid 28,023 Directly attributable costs paid 1,524 Cash and cash equivalents acquired (3,286) 26,261 11 Dividends On 4th June 2007 the 2006 final dividend of 8.8 pence per share, £2,993,000,(2006: final dividend for 2005 of 7.0 pence per share, £2,246,000) was paid. On24th September 2007 the 2007 interim dividend of 6.0 pence per share,£2,045,000, (2006: 4.3 pence per share, £1,409,000) was paid. The directors propose a final dividend for 2007 of 12.0 pence per share,£4,097,000, payable on 2nd June 2008 to shareholders on the register on 2nd May2008, with an ex-dividend date of 30th April 2008. The dividend is subject toapproval by shareholders at the Annual General Meeting and has not been includedas a liability in these financial statements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Fidessa Group