13th Feb 2006 07:01
Royalblue Group PLC13 February 2006 13th February 2006 royalblue group plc preliminary results for the year ended 31st December 2005 royalblue reports strong organic growth with positive outlook 2005 2004 ChangeRevenue £74.2m £59.8m +24%Operating profit £9.6m £8.1m +19%Pre-tax profit £11.3m £9.8m +15%Diluted earnings per share 31.0p 22.3p +39%Dividend per share 10.3p 8.5p +21% All figures, including comparatives, are presented using IFRS. Highlights for the year ended 31st December 2005: • Strong organic growth from core products.• Recurring revenue up 33%, now representing 67% of total revenue.• Consultancy revenue up 22%.• Encouraging progress with new product initiatives. Commenting on these results and current trading, Chris Aspinwall, ChiefExecutive, said: "During 2005 we have seen continued strength within our core business coupledwith good progress in sales resulting from our investment programmes. This hascontinued the momentum we saw in the first-half resulting in an increase inrevenue of 24% over last year. Recurring revenue, representing annual licenceand service fees, has grown 33% over the year to £49.7m, now accounting for 67%of total revenue. Consultancy revenue has also continued to grow, up 22% in theperiod. The business has continued to be strongly cash generative with net cashgenerated from operating activities of £14.1 million. Looking ahead to 2006, we expect that the core business will continue to performstrongly, driven by the increasing acceptance of Fidessa within the globalmarkets, new business opportunities and regulatory changes in all regions. Inparallel, we will continue with our investment programmes, increasing the globalcoverage of our data services, expanding the connectivity network, extending ourproduct offerings in the buy-side and adding derivative functionality across theproduct set. Overall, we expect that the strong trading conditions combined with the salesresulting from our investment programmes will result in growth levels for 2006broadly similar to those we have seen this year. The amount of work to becompleted under our investment programmes remains substantial and therefore wedo not anticipate any significant change in the operating margin. We remainexcited and encouraged about the prospects for our expanded range of productsand services and believe that they will provide a firm foundation for furthergrowth." On the key operational highlights for the year, Chris Aspinwall added: "The strong progress in the core business has been reflected in sales of sevenenterprise Fidessa systems and 19 new hosted Fidessa deals. The total Fidessauser base now exceeds 8,000 screens. Sales of the core platform are continuingto be driven by our customers' need for an industrial strength trading platformin order to remain competitive in the current challenging market conditionscoupled with the market leading level of functionality offered by Fidessa. Goingforward we see this trend continuing as we extend the functionality of the coreplatform. In addition, we expect that opportunities will be created by theregulatory changes coming into the markets such as Regulation National MarketSystem (RegNMS) in the US and the Markets in Financial Instruments Directive(MiFid) in Europe. As a result of our ongoing investment programmes we are starting to see strongprogress in new areas of the market. Our market data business has continued toexpand with coverage of 28 markets and over 2,500 positions now taking marketdata through the Fidessa service. The Fidessa Connectivity Network has continuedto grow with well in excess of 1,000 connections running across the network. Ourmove into the buy-side has been very encouraging with 21 clients signed since astanding start in May and a very strong pipeline developing. We are also veryencouraged by the number and quality of the sell-side firms that are keen tooffer their broking and execution services through the Fidessa connectivitynetwork and our buy-side Execution Management (EMS) product. We feel that thisis strong endorsement for all our connectivity services but particularly for ourEMS product which, we believe, reflects the market belief that there is a needfor a high quality, independent, multi-broker offering to provide executionservices to the buy-side. Our derivatives initiative remains on schedule to commence initial deliveriesduring the first-half of 2006 as we develop the first truly integrated fullfunctionality system for combined cash and derivatives trading. We have alreadysigned our first customer to take the initial deliveries and have a goodpipeline of further prospects for this service." Financial Summary In the year strong growth in revenue has been achieved, up 24% to £74.2 million,from £59.8 million last year. This headline growth is supported by theunderlying growth in both recurring and consultancy revenue. The momentum in therecurring revenue has been maintained, up 33% at £49.7 million and nowrepresenting 67% of the total revenue. The improvement seen in consultancyrevenue since the second-half of 2004 has continued with the revenue up 22% inthe year at £24.1 million, now representing 32% of the overall revenue. Lookingat the breakdown of recurring revenue across our three areas of focus,indicative values for 2005 are that £41 million arose from trading, £7 millionarose from connectivity and £2m arose from market data. It should be noted thatthere is a degree of subjectivity in this breakdown as some services can fallacross more than one of these areas and the breakdown is likely to be refinedfurther in future periods. Operating profit has increased to £9.6 million from £8.1 million in the prioryear, an increase of 19%. As commented in the 2005 Interim Report and the 2004Annual Report, a reduction in the margin of around 1 percentage point was to beexpected as a result of our investment programmes, and the operating margin is13.0% compared to 13.5% in 2004. The net interest earnings are consistent at £1.7 million. In accordance withIAS39 Financial Instruments: Recognition and Measurement, the interest earningsnow includes the capital repayments on the Touchpaper "B" Loan Notes. During theyear we received £0.5 million of capital repayments and £0.3 million of interestpayments from the loan notes, the same as in the prior year. The tax charge for the year has benefited from the conclusion of enquiries intothe treatment of share options in previous years; this provided a tax credit of£1.5 million. Excluding this one-off adjustment for prior years, the effectivetax rate is 24%, compared to 26% in 2004. The headline diluted earnings per share are 31.0p, up from 22.3p, an increase of39%. However, these numbers include the capital repayments on the Touchpaperloan note and the one-off tax adjustment in respect of prior years, neither ofwhich may recur in future years. Excluding these items, the diluted earnings pershare on a comparable basis are up 20% at 24.8p, from 20.7p in 2004. The totaldividends proposed for the year are 10.3p compared to 8.5p, an improvement of21%. The proposed final dividend is 7.0p and, if approved by shareholders, willbe paid on 5th June 2006. Staff numbers have increased to service the revenue growth and the investmentprogrammes. The average headcount in 2005 was 588, up 21% from 485 in 2004. Thestaff numbers at the year end had increased to 640. The business continues to be cash generative with £14.1 million net cashgenerated from operating activities (2004 £13.1 million). However, theinvestment programmes and dividends restrict the overall cash increase to £1.5million in the year, the cash balance at 31st December 2005 being £26.1 million. These are the first results that we have reported using International FinancialReporting Standards (IFRS) and all numbers presented for comparative periods arealso under IFRS. The change to IFRS results in no change to the revenuerecognised or the cash flows of the business. The primary area of change isregarding IAS 38 Intangible Assets, which requires that product developmentexpenditure be capitalised. We have adopted a policy of capitalising productdevelopments and enhancements and amortising the expenditure over three yearsfrom the time of capitalisation. We believe this is a conservative policy,particularly taking into account the nature of the recurring revenue we generatefrom our products. In the year, this change results in expenditure capitalisedof £5.4 million and amortisation of £4.4 million. The other area of change forroyalblue is the expensing of share incentives to the income statement. Thisresults in a charge of £0.5 million against operating profit in the year. Afuller explanation of the transition to IFRS is presented in the notes to thefinancial statements. Operations Introduction During 2005 we have continued to make progress with all our core services whilstalso seeing encouraging results from the new developments coming out of ourinvestment programmes. We have made strong sales of enterprise Fidessa acrossthe world, including deals with large tier one firms which had taken Fidessa ona perpetual licence basis prior to 2000 and have now moved across to the latestversions of the software on an enterprise rental basis. The ability of largefirms to move across to the latest product set is fundamental to our strategy ofproviding a complete service across all tiers of the market and ensuring thatour largest customers do not have products which become legacy. In parallel, wehave made good progress with hosted Fidessa, signing 19 new deals and the totalnumber of users now using hosted Fidessa has increased to in excess of 2,100.The increase in user numbers has been driven by the addition of new users withinexisting customers as well as sales of new systems. The additions at existingcustomers have typically been as a result of extensions to the functional linerather than adding traders to an existing trading desk. Consultancy hascontinued to improve across all regions driven by increased activity in themarket as well as our growing customer base and this has resulted in an increasein consultancy revenue of 22% over the previous year. To cope with the growing demand for our hosted Fidessa services we havecontinued the extensions to our data centres and global network. During 2005 wehave introduced two new data centres in Tokyo, one new data centre in Hong Kongand relocated one data centre to a larger facility in North America. Inparallel, we have enlarged our primary data centre in Europe. We have introducednetwork capacity between our hubs in Asia and extended our capacity betweenEurope and North America. We plan to continually increase capacity in line withcustomer demand and expect to bring additional network capacity on stream during2006. We also plan additional data centre extensions with additional facilitiesbeing brought on line in Hong Kong and Europe during the first-half. It isexpected that further capacity may be added in Europe later in 2006. Throughout all its regions royalblue has a strong commitment to quality acrossall its offerings. The firm is independently certified to ISO 9001 and during2005 we have successfully completed a SAS70 audit. We believe this audit isparticularly important to our US clients in enabling them to satisfy theirSarbanes Oxley requirements when using a Fidessa solution. As a change from previous reports the following sections describe our progressin the primary areas in which we provide services, namely Trading, Connectivityand Market Data. This is as opposed to the regional format we have used in thepast. This change reflects the increasingly global nature of our business andthe fact that many individual sales now encompass functionality across more thanone region. Trading During 2005 we have seen a strong performance throughout our trading businesswith 19 new sales of our hosted Fidessa service and seven new enterprise Fidessadeals being signed. Of these hosted Fidessa deals, 12 are in Europe with theremainder in North America. The sizes of these systems range from small scalewith only a few traders to larger scale implementations supporting over 40users. With the introduction of the new hosted facilities in Asia we arestarting to offer our customers extensions to their hosted Fidessa platforms toallow them to trade the Asian markets. Our data centres in Hong Kong and Tokyoare now operational with their first hosted customers connected to our globalnetwork and coupled with the market data being added for this region, it allowsus to offer the same Fidessa services in Asia as we do in the rest of the world. In Europe the strong markets and growing volumes have driven sales not only forthe core Fidessa offering, but also for extensions across a whole range offunctionality. These extensions have ranged from broker and RSP (Retail ServiceProvider) access through the Fidessa connectivity network to support for DMA(Direct Market Access), market data, VWAP and pairs trading. Going forward, weexpect these trends to continue as the services offered by our customers becomeincreasingly complex to match the demands of their clients. We are also seeingchanges in the regulatory landscape with the largest of these being MiFid.Although there are still details of the rules to be finalised, MiFid willincrease the obligation on brokers to establish and monitor the way in whichthey manage orders and executions. This will make it much harder for any brokerto continue without a solution such as Fidessa in place. We have extended the trading functionality within our workstation product withthe addition of buy-side execution functionality. This product, which wasintroduced in Europe in May 2006, has made an extremely encouraging start and isalready established at 21 customers. We expect to extend this product rapidly,both functionally and geographically. The execution management functionalitywithin the workstation is also proving popular with brokers wishing to receiveorder flow from the Fidessa connectivity network and we now have eight brokersacross Asia using it for this purpose. In North America, the markets continue to move rapidly with the changingregulatory environment as well as structural changes across the markets. Anincreasing number of Fidessa sales in the US now include support forcross-border order flow as well as for the domestic US market. We expect this tobecome an increasingly defining feature of this market as firms compete toidentify a unique proposition that they can offer on a global basis. On theregulatory side there is a substantial change, with RegNMS, which is expected tocome into force during 2006. The new regulations are designed to enhance andmodernise the regulatory structure of the US equity markets with additionalrules to address execution, market access, pricing and dissemination of marketinformation. Although the exact implication of these rules is still to becomeclear, one aspect of the new execution rules may have quite a far reachingimpact on the market. This aspect requires market centres to establish, maintainand enforce policies to prevent "trade-throughs"1. This has already hadimplications for NYSE, which is the largest market in the US and is currentlyfloor based, as it would not be protected by the rule which is intended to applyto fast electronic markets. In reaction, the central markets in the US aremaking an increasing commitment to technology-focused trading. NYSE isproceeding with the purchase of ARCA, an electronic market that hastraditionally traded NASDAQ securities, which will give NYSE a very quick entryinto electronic trading. In a similar move, NASDAQ has increased its ownliquidity with the purchase of INET, another electronic market. It is alsoexpected that some other markets, including derivative markets, may enter theequity trading arena and offer "protected quotes"2 further fragmentingliquidity. As with most regulatory changes occurring within our markets, weexpect that RegNMS will result in increased automation and create tradingopportunities which stimulate demand for further applications within Fidessa. 1 The execution of an order in its market at a price that is inferior to aprice displayed in another market. 2 The trade through rule applies to the best quote in each market centre so thebest quote is referred to as "protected". In Japan, the strong equity market has contributed to a 100% increase inexchange transactions. The record volumes have both put a strain on theexchanges and generated interest in Fidessa which, from its US pedigree, is ableto process volumes substantially ahead of the levels typically seen in Japan.This has directly resulted in a further tier one Japanese bank signing to takeour market connectivity solution. The strength of Fidessa in the Asia region hasalso been seen in Hong Kong where in addition to the deal we signed with anAustralian bank earlier in the year we have also won a further enterpriseFidessa customer. As new customers go live the total volume of order flowpassing though Fidessa systems in the Asian region is gradually increasing andin the largest market, Tokyo, we would expect this total to be nearing 20% bythe end of 2006. We have commenced our development programme to add support for trading a rangeof derivative products through Fidessa alongside the existing cash product. Webelieve that the timing for this initiative is right and that the derivativemarket is set for a period of growth. According to a study from Aite Group,"Derivatives Management: Ready for Prime Time?", industry spending onderivatives management technology is expected to exceed $7 billion by 2009 asdemand for derivatives products grows. We believe that this will translate intothe requirement for a high quality, industrial strength trading platformproviding the same level of automation that firms have been used to in the cashtrading side of their business. The combined cash and derivative platform,developed within Fidessa, will leverage the enormous investment in our coresoftware, providing a highly resilient, fast, scalable and functionally richplatform which will enable sell-side firms to reduce the high costs andinefficiencies associated with the traditional silo approach. In addition, thegrowing burden of compliance and reporting requirements make it attractive forfirms to reduce the number of systems and, wherever possible, to centralise allthe trading information about their clients' transactions irrespective of assetclass. We are seeing the beginning of this move within our client base as theyaccommodate new investors, such as hedge funds and algorithmic traders, who wishto execute complex strategies that cut across different asset classes. We alsosee the exchanges themselves reacting, with derivative exchanges consideringlisting cash product as a result of RegNMS and ARCA (soon to be part of NYSE)looking to migrate its derivatives and cash technology onto the same platform. We have already signed our first customer to take the initial deliveries fromour derivatives programme, which will be rolling out during the first-half, andhave a good pipeline of further prospects for this new service. Further rolloutswill continue throughout the year as the full multi-asset class productdevelops. Market Data Our market data business has continued to develop during 2005 as we haveincreased our market coverage and extended the functional line of theworkstation product. We now have well over 2,500 market data users spread acrossover 100 clients. Of these over 1,700 are pure workstation users with theremainder taking data integrated with their Fidessa trading products. Marketdata coverage has been extended to incorporate real-time data from Athens,Toronto, Johannesburg and Plus Markets in the UK as well as full support for USLevel 2 (depth of book). We have also extended coverage of fundamental data toinclude corporate actions, dividends, fundamentals, company accounts, brokerforecast data and historical charting across Europe and North America. Inpreparation for our developments in Asia, we have added static trading data for12 Asian markets for non-member trading and plan to add real-time coverage forOsaka and Tokyo during 2006. In line with our derivatives initiative we willbegin supporting market data for derivatives from Euronext and Eurex during2006. In addition to providing market data to customers in Europe, we have extendedour market data services within our US customer base. Traditionally we supply USmarket data to hosted Fidessa customers but enterprise Fidessa customers havetaken data from other sources. During 2005 we have made market data available toenterprise Fidessa customers as well and now have the majority of thesecustomers taking US market data directly through our service. Connectivity During 2005 we have seen continued expansion of the Fidessa connectivity networkwith well in excess of 1,000 connections now running across it. This network nowruns across all the services we offer, providing connectivity between thebuy-side and sell-side, between the sell-side and the exchanges, to theIndication-of-Interest networks, to the RSPs and our own remote broking network.As we have expanded the service we have seen continuous demand from brokersacross a wide range of locations wishing to join the network to receive orderflow. In Europe, we continue to have one of the largest RSP networks with 17 RSPsproviding service whilst the total number of brokers providing remote executionservices over the network has increased to over 60. The Fidessa connectivitynetwork also provides connectivity to the brokers participating on our EMSworkstation and this now stands at 20. We are particularly pleased with thequality of the brokers that are participating in this service which includesmany tier one firms such as Merrill Lynch, Morgan Stanley and Credit Suisse. InJanuary 2006 we announced that Goldman Sachs had joined the network and thatFidessa clients are now able to access Goldman's GSAT(R) Algorithmic Tradingservices as well as route care order flow and perform DMA trading. The strength of the Asian markets has stimulated interest from abroad in tradingthese markets which is driving demand for a high quality electronic connectivityservice. As we extend our hosted offerings we are now bringing the Fidessaconnectivity network into this region and already have our first customers inplace routing order flow across our network into the Asian markets. The Fidessa connectivity network has been instrumental in allowing us to signmore customers who wish to trade through remote memberships and this now helpsto leverage sales of our trading functionality. We believe this network willcontinue to perform an important function in leveraging all aspects of Fidessaincluding the new services we are developing and will help to make theseservices available quickly to the widest possible audience. Lava Patent Lawsuit In June 2003 we noted the announcement released by Lava Trading Inc. (Lava) thatit had filed a patent infringement claim in the US against royalblue. The patentrelates to the concept of displaying prices from more than one source (ECN) on asingle screen in the US. In December 2003 Lava filed an amendment to its lawsuitalleging unfair trade practices on the part of royalblue, in particular inrelation to the pricing of products and associated services. In June 2004 we announced that the United States District Court for the SouthernDistrict of New York had made its ruling on the first stage of the patentinfringement case. This first stage, known as a Markman claims constructionhearing, defines the technical terms in the patent, which will be used insubsequent hearings and is instrumental in establishing whether patentinfringement has occurred. The ruling confirmed our definition of all the majorterms and strengthens our position that the case brought by Lava is withoutmerit. In December 2004 we announced that a Stipulated Judgment had been entered intothe record in the United States District Court for the Southern District of NewYork. This formally recorded that, based on the findings of the earlier Markmanhearing, royalblue does not infringe Lava's patent. In both this announcementand the one in June 2004, royalblue noted that it expected Lava to lodge anappeal. Lava lodged the appeal which was heard in December 2005. A decision bythe Appeals Court is expected shortly. Employees On behalf of all royalblue's shareholders, the Board would like to extend itssincere thanks to all employees. The strength of royalblue's unrivalled productrange is a testament to their skill and dedication in making royalblue into atruly global services business. The Board believes that well constructed and executed share incentive schemesstill form a key reward and lock-in tool for both employees and management. Inline with this policy an Extraordinary General Meeting has been calledrequesting the approval of a new employee share option scheme to replace the onethat is due to expire in the first-half of 2007. In conjunction with this newscheme is a proposal for a plan focused at the senior managers that requiresexceptional performance (an average of 20% growth per annum over ten years) forall rewards to vest. The Board has consulted extensively with shareholders onthe structure of both of these schemes and has been very encouraged by thepositive contribution the shareholders have made in their development. The Boardexpects both schemes to be approved at the EGM. Outlook Looking ahead we expect that trading will remain strong into 2006. We anticipatecontinued increases in revenue across all product lines and regions resulting inan overall growth rate similar to that achieved 2005. We plan to continue ourhigh level of investment bringing our four major initiatives to fruition andthis is expected to result in the operating margin remaining at a similar levelto that achieved this year. Looking further ahead, we are seeing the increasing leverage between our Fidessaservices working to drive the business forward and believe that each of our keyareas of trading, market data and connectivity will become an important revenuestream in its own right. We also believe that there will be a growing trendtowards globalisation of order flow over the next few years and that theservices we are now developing will become an increasingly unique and valuablecommodity providing the opportunity for further growth in the future. enquiries:John Hamer, Chairman Edward Bridges, Financial DynamicsChris Aspinwall, Chief Executive Tel: 020 7831 3113Andy Malpass, Finance Director Fax: 020 7831 6341www.fidessa.comTel: 01483 206300Fax: 01483 206301 Consolidated Income Statement for the year ended 31st December 2005 2005 2004 Note £'000 £'000 Revenue 2 74,234 59,768Operating expenses 3 (65,199) (52,393)Other operating income 594 688Operating profit 9,629 8,063Interest receivable 5 1,707 1,741Interest payable - (2)Profit before income tax 11,336 9,802Income tax expense 6 (1,240) (2,577)Profit for the period 10,096 7,225 Basic earnings per share 7 31.6p 22.7pDiluted earnings per share 7 31.0p 22.3p Interim dividend paid 3.3p 2.7pFinal dividend proposed 7.0p 5.8pTotal dividend 10.3p 8.5p Consolidated Balance Sheet at 31st December 2005 2005 2004 Note £'000 £'000AssetsNon-current assetsProperty, plant and equipment 8,757 6,347Intangible assets 7,984 6,681Deferred tax assets 3,165 1,993Other receivables 898 898Total non-current assets 20,804 15,919 Current assetsTrade and other receivables 8 18,615 12,787Income tax receivable 672 886Cash and cash equivalents 26,120 24,590Total current assets 45,407 38,263 Total assets 66,211 54,182 EquityIssued capital 3,272 3,268Share premium 11,743 11,610Translation reserve (51) (206)Retained earnings 27,241 18,838Total equity 42,205 33,510 LiabilitiesNon-current liabilitiesOther payables 548 328Deferred tax liabilities 1,264 1,953Total non-current liabilities 1,812 2,281 Current liabilitiesTrade and other payables 9 20,676 14,849Current income tax liabilities 1,518 3,542Total current liabilities 22,194 18,391 Total liabilities 24,006 20,672 Total equity and liabilities 66,211 54,182 Consolidated Statement of Changes in Shareholders' Equity Cumulative Share Share translation Retained Total capital premium adjustment earnings equity £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2004 3,268 11,610 - 21,423 36,301 Gain on sale of own shares byemployee share trust - - - 250 250Income tax deduction recogniseddirect to equity - - - 279 279Deferred tax recognised direct to equity - - - (240) (240)Currency translation adjustments - - (206) - (206) - - (206) 289 83Profit for the period from theincome statement - - - 7,225 7,225Total income and expensefor the period - - (206) 7,514 7,308 Employee share incentive charges - - - 414 414Purchase of shares by employeeshare trust - - - (308) (308)Capital proceeds from sale of ownshares by employee share trust - - - 650 650Dividends paid - - - (10,855) (10,855)Balance at 31 December 2004 3,268 11,610 (206) 18,838 33,510 Gain on sale of own shares byemployee share trust - - - 89 89Income tax deduction recogniseddirect to equity - - - 39 39Deferred tax recognised direct to equity - - - 794 794Currency translation adjustments - - 155 - 155 - - 155 922 1,077Profit for the period from theincome statement - - - 10,096 10,096Total income and expense forthe period - - 155 11,018 11,173 Exercise of share options 4 133 - - 137Employee share incentive charges - - - 538 538Purchase of shares by employeeshare trust - - - (312) (312)Capital proceeds from sale of ownshares by employee share trust - - - 67 67Dividends paid - - - (2,908) (2,908)Balance at 31 December 2005 3,272 11,743 (51) 27,241 42,205 Consolidated Cash Flow Statement for the year ended 31st December 2005 2005 2004 Note £'000 £'000Cash flows from operating activitiesProfit before tax 11,336 9,802Adjustments for: Staff costs - share incentives 3 538 414 Product development amortised 3 4,373 3,789 Depreciation of property, plant and equipment 3 3,604 2,433 Amortisation of other intangible assets 3 152 36 Loss on sale of property, plant and equipment 3 4 8 Interest receivable (1,707) (1,741) Interest payable - 2Cash generated from operations before changes in working capital 18,300 14,743Movement in trade and other receivables (5,653) (623)Movement in trade and other payables 5,223 683Cash generated from operations 17,870 14,803Income tax paid (3,808) (1,748)Net cash generated from operating activities 14,062 13,055 Cash flows from investing activitiesPurchase of property, plant and equipment (5,641) (4,043)Proceeds from sale of property, plant and equipment 20 11Purchase of other intangible assets (403) (191)Product development (5,418) (4,076)Interest received 1,197 1,235Proceeds from capital repayment of Touchpaper "B" Loan Note 500 500Interest paid - (2)Net cash used in investing activities (9,745) (6,566) Cash flows from financing activitiesProceeds from shares issued 137 -Purchase of own shares by employee share trust (312) (309)Proceeds from sale of own shares by employee share trust 156 901Dividends paid (2,908) (10,855)Net cash used in financing activities (2,927) (10,263) Net increase/(decrease) in cash and cash equivalents 1,390 (3,774)Cash and cash equivalents at 1st January 24,590 28,498Effect of exchange rate fluctuations on cash held 140 (134)Cash and cash equivalents at end of period 26,120 24,590 Notes 1 The Group is preparing its financial statements in accordance with IFRS asadopted by the European Union for the first time and consequently has appliedIFRS 1 First-time Adoption of International Financial Reporting Standards. IFRS 1 First-time Adoption of International Financial Reporting Standards setsout the transition rules, which must be applied, when IFRS is adopted for thefirst time. The standard sets out certain mandatory exemptions to retrospectiveapplication and certain optional exemptions. The most significant optionalexemptions available and taken by the Group are as follows: (i) Share-based transactions; the Group adopted the exemption inIFRS 1 which allows a first-time adopter to apply the new standard only to shareoptions and equity instruments granted after 7th November 2002 that have notvested by 1st January 2005. (ii) Cumulative translation differences; under IAS 21 The Effects ofChanges in Foreign Exchange Rates cumulative translation differences withinreserves are recycled from equity to the income statement on disposal of aforeign operation. In order to eliminate the need to retrospectively apply thisrequirement, the Group took the exemption to set cumulative translationdifferences to zero at the date of transition. The financial statements are prepared on the historical cost basis with theexception of financial instruments which are stated in accordance with IAS 39Financial Instruments: Recognition and Measurement. The accounting policies of the Group under previous UK GAAP are detailed in the2004 Annual Report and Accounts and have been amended as discussed in the 2005Interim Report. The revised accounting policies of the Group conform to IFRS. The financial information set out above does not constitute the group orcompany's statutory accounts for the years ended 31 December 2005 or 2004.Statutory accounts for 2004, which were prepared under UK GAAP, have beendelivered to the registrar of companies, and those for 2005, prepared underIFRS, 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 Segmental 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 and the intangible asset forproduct development capitalised are excluded from segment assets andliabilities. The segment information in respect of the regions is presentedbelow. NorthFor the year ended 31st December 2005 Europe America Asia Total £'000 £'000 £'000 £'000 Segment revenue 40,391 23,754 10,089 74,234Segment result 10,395 810 5,255 16,460Product development amortised (4,373)Central costs (2,458)Operating profit 9,629 Capital additions 3,379 2,225 440 6,044Depreciation and amortisation 1,966 1,665 125 3,756Segment assets 36,676 12,840 5,302 54,818Segment liabilities 13,559 6,557 1,108 21,224 NorthFor the year ended 31st December 2004 Europe America Asia Total £'000 £'000 £'000 £'000 Segment revenue 30,328 19,904 9,536 59,768Segment result 6,010 2,127 5,908 14,045Product development amortised (3,789)Central costs (2,193)Operating profit 8,063 Capital additions 2,079 1,847 308 4,234Depreciation and amortisation 1,309 1,132 28 2,469Segment assets 33,132 8,738 2,922 44,792Segment liabilities 10,545 4,068 564 15,177 3 Operating expenses 2005 2004 £'000 £'000 Staff costs - salaries 35,527 29,022Staff costs - social security 3,625 2,757Staff costs - share incentives 538 414Total staff costs 39,690 32,193Depreciation of property, plant and equipment 3,604 2,433Amortisation of intangible assets 152 36Product development capitalised (5,418) (4,076)Product development amortised 4,373 3,789Auditor's remuneration for the Company 35 40Auditor's remuneration for other companies in the Group 128 125Fees paid to auditor for non-audit related work 60 45Operating lease rentals - property 2,539 2,420Operating lease rentals - plant and machinery 31 58Loss on sale of property, plant and equipment 4 8Exchange (gains)/losses (747) 340Other operating expenses 20,748 14,982Total operating expenses 65,199 52,393 4 Staff numbers The average number of people employed by the Group during the year was asfollows: 2005 2004 Number Number Europe 338 290North America 206 162Asia 44 33Total average staff numbers 588 485 At 31st December At 31st December 2005 2004 Number Number Technical 317 269Product development 123 102Sales and marketing 49 32Management and admin 99 82Total average staff numbers 588 485 5 Interest receivable 2005 2004 £'000 £'000 Interest receivable 877 915Interest received on Touchpaper "A" and "B" Loan Notes 330 326Capital repayment of Touchpaper "B" Loan Notes 500 500Total interest receivable 1,707 1,741 In accordance with IAS 39 Financial Instruments: Recognition and Measurement,where the effective interest rate has been and is still assessed as being zero,both capital and interest amounts received are recognised as income on receipt. 6 Income tax expense 2005 2004 £'000 £'000Current tax expenseCurrent year domestic 2,720 2,652Current year foreign 953 449Adjustments for prior years (1,492) (110)Total current tax expense 2,181 2,991 Deferred tax expenseOrigination and reversal of temporary differences (120) 320Benefit of tax losses recognised (821) (734)Total deferred tax expense (941) (414) Total income tax expense in income statement 1,240 2,577 Reconciliation of effective tax rate 2005 2005 2004 2004 £'000 £'000 Profit before tax 11,336 9,802Income tax using the domestic corporation tax rate 30% 3,401 30% 2,941Effective tax rates in foreign jurisdictions (201) 10Expenses not deductible for tax purposes 148 253Tax incentives (447) (367)Utilisation of tax losses (19) -Capital repayment not taxable (150) (150)Adjustment relating to prior years (1,492) (110)Tax expense and effective tax rate for the year 11% 1,240 26% 2,577 7 Earnings per share 2005 2004 £'000 £'000 Profit attributable to shareholders 10,096 7,225Less gain relating to capital repayment of Touchpaper "B" Loan Notes (500) (500)Profit attributable to shareholders excluding gain 9,596 6,725Less tax adjustment from prior years (1,492) -Profit attributable to shareholders excluding gain and tax adjustment from prior years 8,104 6,725 2005 2004 Number '000 Number '000 Weighted average number of shares in issue 32,687 32,679Weighted average number of shares held bythe employee trusts (761) (909)Shares used to calculate basic earnings per share 31,926 31,770Dilution due to share options and warrants 691 686Shares used to calculate diluted earnings per share 32,617 32,456 Basic earnings per share excluding gain andtax adjustment from prior years 25.4p 21.2pDiluted earnings per share excluding gain andtax adjustment from prior years 24.8p 20.7pBasic earnings per share from tax adjustmentfrom prior years 4.7p -Diluted earnings per share from tax adjustmentfrom prior years 4.6p -Basic earnings per share excluding capital repayment 30.1p 21.2pDiluted earnings per share excluding capital repayment 29.4p 20.7pBasic earnings per share on gain relating to capitalrepayment of Touchpaper "B" Loan Notes 1.5p 1.5pDiluted earnings per share on gain relating to capitalrepayment of Touchpaper "B" Loan Notes 1.6p 1.6pBasic earnings per share 31.6p 22.7pDiluted earnings per share 31.0p 22.3p 8 Trade and other receivables 2005 2004 £'000 £'000 Trade receivables 14,657 9,230Amount due from subsidiaries - -Prepayments 1,639 1,379Accrued revenue 1,262 1,346Other receivables 1,057 832Total trade and other receivables 18,615 12,787 9 Current liabilities; trade and other payables 2005 2004 £'000 £'000 Trade payables 1,640 1,989Amount due to subsidiaries - -Accrued expenses 9,064 6,176Deferred revenue 8,327 5,337Other taxes and social security 1,645 1,347Total trade and other payables 20,676 14,849 10 Explanation of transition to IFRS These are the Company's and the Group's first consolidated financial statementsprepared in accordance with IFRSs. The accounting policies applied in preparingthe consolidated financial statements for the year ended 31st December 2005, thecomparative information for the year ended 31st December 2004 and thepreparation of an opening IFRS balance sheet at 1st January 2004, the Group'sdate of transition to IFRS. In preparing its opening IFRS balance sheet and comparative information for theyear ended 31st December 2004, the Group has adjusted amounts reportedpreviously in financial statements prepared in accordance with UK GAAP. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position and financial performance is set out in the followingtables and notes accompanying them. There have been no changes to the Group'scash flows as a result of the transition. 31st December 1st JanuaryEquity as at: 2004 2004 Note £'000 £'000 Total equity reported under UK GAAP 26,753 21,525Intangible assets; product development capitalised a 6,511 6,224Deferred tax liability; product development capitalised a (1,953) (1,867)Staff benefits; share-based payments b (22) (93)Deferred tax asset; share-based payments b 370 570Dividends payable c 1,851 9,941Total equity reported under IFRS 33,510 36,300 12 months to 31stProfit for the period: December 2004 Note £'000 Profit for the period reported under UK GAAP 7,607Product development; capitalisation and amortisation a 287Product development; change in tax charge a (86)Share-based payments; expensed in the income statement b (343)Share-based payments; change in tax charge in the income statement b (240)Profit for the period reported under IFRS 7,225 An explanation of how the transition from UK GAAP to IFRS has affected theGroup's earnings per share for the 12 months to 31st December 2004 is in thetable below. Effect of Under UK GAAP transition to IFRS IFRSBasic earnings per share 23.9p (1.2p) 22.7pDiluted earnings per share 23.4p (1.1p) 22.3p a. Research and development; IAS 38 Intangible Assets Under UK GAAP all expenditure on research and development was expensedas incurred. Under IFRS, research expenditure is recognised as an expense asincurred but costs incurred on product development are capitalised as intangibleassets when it is probable that the development will provide economic benefit,considering its commercial and technological feasibility, resources areavailable for the development and costs can be measured reliably. Otherdevelopment expenditures are recognised as an expense as incurred. Capitalisedproduct development expenditure is amortised over the expected useful life. Adeferred tax liability arises on the product development expenditure that hasbeen capitalised. b. Employee benefits; IFRS2 Share-based Payment and IAS 19 Employee Benefits The primary change is that IFRS2 requires that the fair value forshare incentives to employees be estimated and charged to the income statementover the vesting period of the incentive. This only applies to share incentivesgranted and awarded since November 2002 and not vested at 1st January 2005. Thestandard also requires that the potential tax benefit to employing companiesfrom share incentives being exercised in the future be recorded as a deferredtax asset based on the intrinsic value of all the incentives at the balancesheet date. Tax charges and credits are only reflected in the income statementfor incentives granted after November 2002 for which the fair value is chargedto the income statement. c. Dividends payable Under IFRS dividends are charged to the income statement when paid orapproved and not in the period to which they relate as required previously by UKGAAP. This typically results in dividends being deducted from equity in a laterperiod. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Fidessa Group