12th Feb 2007 07:01
Royalblue Group PLC12 February 2007 12th February 2007 royalblue group plc Preliminary results for the year ended 31st December 2006 royalblue reports continued strong progress and outlook 2006 2005 ChangeRevenue £94.6m £74.2m +27% Operating profit £12.4m £9.6m +29% Pre-tax profit £14.3m £11.3m +27% Adjusted diluted earnings per share* 29.4p 24.8p +19% Dividend per share 13.1p 10.3p +27% Cash balance £40.1m £26.1m +54% *EPS adjusted to remove the effect of a material tax credit in 2005 and loan note repayments in both years Highlights for the year ended 31st December 2006: • Strong organic growth across the business. • Very strong performance from overseas operations, particularly the US. • Customer base increased by over 50% as a result of new product initiatives. • Total Fidessa(R) user base now exceeds 10,000. • First sales of new derivative trading platform. • Recurring revenue up 38%, now representing 72% of total revenue. Commenting on these results and current trading, Chris Aspinwall, ChiefExecutive, said: "2006 has been a year of strong progress for royalblue. The new initiativesdeveloping through our previously announced investment programme have combinedwith a strong underlying market to enable us to deliver a good result across theregions. This has been reflected in the trading performance with revenue up by27%, operating profit up 29% and recurring revenue up by 38%, now representing72% of overall revenue. The company has been particularly cash generative in thesecond half resulting in a closing cash balance of £40.1 million, up from £26.1million last year. During 2006 we have achieved a number of notable milestones in the developmentof our product set including the first sales of our new multi-asset platform,the addition of derivative data within our ticker plant, the first sale of ourFidessa BlueBox algorithmic trading application and the expansion of our hostedcustomer base in Tokyo and Hong Kong. The continued success of the Fidessaconnectivity network and Fidessa workstation has resulted in a significantexpansion of our customer base with over 120 new customers being added during2006. This represents an increase of over 50% in our overall customer base andwe believe this expansion is strategically important and will play a key role inproviding opportunities in the future. The very strong performance of ouroverseas operations, particularly the US, emphasises the traction we have nowachieved as a global player and provides an excellent position from which todevelop our operations throughout the regions. Looking ahead to 2007, our investment programme will continue to deliver moreproducts which will further increase our addressable market. In parallel, weexpect that the financial markets will be extremely active with a number ofregulatory and structural changes taking place across the regions. In additionthe derivative market we are now entering is experiencing record levels oftrading and as a result we expect to see increasing demand in this marketplace.We will also continue to expand our regional coverage with the introduction ofour hosted platform into the Canadian market. As a result we expect that we willsee further strong growth in 2007 at rates similar to those experienced in thesecond half of 2006, although it is expected that the current strength ofsterling could have some impact if it is maintained for the year. In order tosupport the growth we anticipate that we will need to accelerate our investmentin the necessary network and data centre infrastructure as well as extend ourmarket data coverage. As a result we expect that capital expenditure will be ata higher rate in the coming year as we invest in this infrastructure. Looking further ahead, we remain confident that our vision of providing aglobal, integrated solution for cross-asset trading, market data andconnectivity remains compelling and will enable us to further develop ourposition in the market. We will continue our investment programme to deliver thenew products required to achieve this vision and we expect that this programmewill continue throughout 2007 and beyond." Commenting on proposals to change the company name from royalblue group plc toFidessa group plc Chris Aspinwall added: "As our business grows we are determined to establish a global brand whichbecomes synonymous with the high quality, integrated business services that weoffer. At the moment we have two separate brands with Fidessa, the product,better known in the market we serve and royalblue, the company, quoted inregulatory announcements. We intend to propose a resolution at this year's AGMto change the name of the listed entity from royalblue group plc to Fidessagroup plc. At this time we will also change the names of the trading companiesto use the Fidessa name. This change will enable us to provide a consistentimage across all our activities allowing us to deliver a single, high value,global brand." Financial Summary In the year strong growth in revenue has been achieved, up 27% to £94.6 million,from £74.2 million for the same period last year. This headline growth continuesto be driven by the momentum in recurring revenue which has increased by 38% to£68.3 million, now representing 72% of total revenue. Looking at the breakdownof recurring revenue across our three areas of focus, indicative values for theyear are that £48 million arose from trading, £12 million arose fromconnectivity and £8 million arose from market data. The consultancy revenue hasincreased by 9% to £26.3 million, now representing 28% of total revenue. Strong growth in operating profit has also been achieved. The operating profitis up by 29% to £12.4 million from £9.6 million. This is an operating margin of13.1%, fractionally up on the 13.0% reported for the previous year. The financeincome is up by 12% at £1.9 million on the back of stronger interest receivablefrom cash deposits. This gives an increase in the profit before tax of 27% to£14.3 million from £11.3 million. The effective tax rate has increased to 27.9%driven by increased earnings from higher tax jurisdictions overseas, the ratefor 2005 having benefited from the £1.5 million tax credit relating to thetreatment of share options in prior periods. The low tax rate in 2005 has alsomeant that the unadjusted EPS in 2006 is slightly lower than 2005 (30.9p in 2006and 31.0p in 2005). Adjusting for the tax credit provides a more realisticcomparison with diluted EPS of 29.4p, up from 24.8p last year. The business continues to be cash generative and the cash balance has increasedto £40.1 million, up from £26.1 million last year. Within the cash movements£25.5 million net cash has been generated from operating activities. Thisrepresents an operating cash conversion rate of over 200%. The current market for Mergers and Acquisitions is very active and royalblue isseeing an unusually large number of companies in its sector that are potentiallyfor sale. As a result we believe it is prudent to maintain the strong cashbalance for the time being to support any acquisition opportunity that becomesavailable. The total dividends proposed for the year are 13.1p, compared to 10.3p, anincrease of 27%. The proposed final dividend is 8.8p and, if approved byshareholders, will be paid on 4th June 2007, with an ex-dividend date of 2nd May2007. Staff numbers have increased to service the current revenue growth and theinvestment programmes for the future growth. Over 20% of the staff continue tobe dedicated to product development. The average headcount in the period was722, up 23% from 588 in 2005. The staff numbers at 31st December 2006 hadincreased to 850. Operations Introduction During 2006 we have seen strong progress across all our business lines. Sales ofhosted and enterprise Fidessa are continuing to be driven by our customers' needfor an industrial strength trading platform coupled with the market leadingfunctionality offered by Fidessa. Demand for solutions such as Fidessa are alsobeing driven by increased regulation such as MiFID (Markets in FinancialInstruments Directive) in Europe and RegNMS (Regulation National Market System)in the US. In parallel to this, we are also seeing benefits flowing through as aresult of our investment programme with the first sales of our new derivativetrading functionality and a strong increase in sales of our market data andconnectivity products. The expansion of the Fidessa connectivity network and Fidessa workstation aredramatically increasing the global presence of Fidessa. Across the world thetotal number of active Fidessa screens has now increased to over 10,000, up byaround 25% during the year. The total number of customers using Fidessa hasincreased by 120 which represents an increase of over 50% in our total customerbase. We believe this expansion in both our customer base and the use of Fidessaare exciting developments and will allow us to leverage additional relationshipsto develop the business still further. We plan to continue our investment programme as we extend our capability acrossall areas of the business. These extensions, which form part of our vision toprovide an integrated solution for cross-asset trading, market data andconnectivity, involve the development of new exchange gateways, the extension ofour data coverage and the implementation of whole new functional areas. Inaddition, in order to facilitate further growth, we will continue to invest inthe necessary infrastructure, expanding our data coverage, increasing ournetwork capacity and adding further capacity to our data centres. This expansionis envisaged to continue as a rolling programme as the scale of our operationsdevelops. Fidessa Trading During 2006 we have made continued strong progress across our range of buy-sideand sell-side trading services, with over 35 sales of our hosted and enterprisetrading platform and over 40 sales of our execution management (EMS)workstation. The trading platform sales were spread across the regions with fivesales in Asia and the remainder roughly evenly distributed between the US andEurope. The number of hosted customers using Fidessa in Hong Kong and in Tokyohas risen as new systems have gone live and we now have a range of differentsize customers live in both centres allowing us to offer a proven packagedservice to many more players within the local markets. With this solutionavailable, supported by highly resilient dual data centres in each region, weare now truly offering a complete range of hosted Fidessa services to themarketplace on a global basis. In addition to the new signings, we are also seeing continued demand from withinour larger clients to expand their use of Fidessa. This has resulted incontinued improvement in demand for Fidessa consultants to develop their Fidessainstallations and to meet their specific business needs. We expect this willcontinue to grow as clients evolve and leverage their Fidessa solutions todeliver against their own business needs, as well as to address requirements andregulations from initiatives such as MiFID in Europe and RegNMS in the US. In Japan, we continue to consolidate our position as the leading supplier ofdomestic trading systems to the tier-one brokers with the addition of MitsubishiUFJ Securities Co. Ltd. as a client. Increasing volumes in Japan are forcingclients to automate their front and mid-office business flows, and a largeproportion of order flow now comes into Japan from offshore, generating the needfor both a global and regional trading solution. Fidessa is well placed toaddress all these needs and we anticipate further growth in the Japanese marketas a result. Other Asian markets are also following this trend with the demandfor electronic trading fuelling the growth of volumes. Many Asian countries arenow moving toward less onerous and less complex regulatory and complianceregimes, more akin to western markets, and strategic alliances between exchangesboth within Asia and outside are all helping to facilitate activities such aselectronic, algorithmic and non-member trading. Across all the regions regulatory changes coupled with demands across exchanges,brokers and buy-sides to use technology to reduce their costs are manifesting inincreased numbers of Alternative Trading Systems (ATSs) and crossing networksbeing formed. In addition a new area of the market is being created supportingdark pools of liquidity (buy and sell orders which are not published to themarket). These developments could produce exciting opportunities for Fidessa,both as additional sources of liquidity which can be traded through Fidessa andalso as the potential for Fidessa to participate in helping to form the darkpools themselves. Another key driver in the evolution of the marketplace is the growing demand foralgorithmic trading systems globally. Fidessa has long been a provider of toolsfor specific trading requirements such as Direct Market Access (DMA), VolumeWeighted Average Price (VWAP) and Pairs Trading, but in 2006 we launched ourfirst generic algorithmic trading engine - Fidessa BlueBox. This solution istargeted at brokers who want to trade a range of industry standard algorithmicmodels, as well as at those that additionally want to build their own bespokealgorithmic strategies. As a fully hosted service with integrated market dataand exchange connectivity as standard, as well as the full power of the FidessaOMS (Order Management System) behind it, Fidessa BlueBox provides a unique newservice in this space and delivers a quick and easy solution for sell-sidebrokers who want to leap-frog competitors and gain a flexible, sophisticatedalgorithmic trading solution. We already have our first client signed forFidessa BlueBox and plan to launch the product in further regions during 2007. During 2006 we delivered the first stage of our strategy to make Fidessa amulti-asset trading platform with the launch in Europe of support forderivatives trading. By extending the platform to include these instruments wehave created a genuinely integrated solution for businesses wanting to tradedifferent asset classes from different trading desks, whilst maintaining aconsolidated view of their positions, orders, risk, etc. This is also a veryattractive proposition for clients as it often allows them to replace a numberof existing disparate systems and so streamline and integrate differentactivities to capitalise on trading opportunities. This development has alreadyled to three clients signing up for the solution. Two of these, Insinger deBeaufort and ADM International Securities, who are completely new clients forFidessa, will commence roll out during 2007. The third, Deutsche Bank, who is anexisting client, has already gone live with Fidessa after an exhaustivecomparison selecting our solution because of its performance and reliability.Our initiative to move into derivatives comes at the same time as derivativesmarkets set new records in terms of the volume of contracts traded. The tradedvolumes on the derivative exchanges are typically growing at between 20% and 40%per annum, with the fastest growing sectors being equity and equity indexderivatives. These market trends play directly to our multi-asset strategicplans, and, as a consequence of this, we are seeing more interest from other newprospects and existing clients for our multi-asset solution. Our Fidessa EMS (Execution Management Service) has continued to develop during2006 with the addition of over 40 customers. We have found that the Fidessa EMSsolution is applicable not only by pure buy-sides, such as hedge funds and assetmanagers, but also with boutique and intermediary brokers who use it to handleand onward route client order flow to other brokers for markets that they arenot members of. During the year we have launched multi-asset support withinFidessa EMS for data and order flow, as well as a unique Indication of Interest(IOI) distribution service from which buy-sides can trade directly with a clickof the mouse. During 2006 we have also started to make Fidessa EMS availableoutside of Europe and we expect that there will be growing potential from thisproduct throughout the regions in 2007. Looking ahead to 2007 we will continue to evolve the Fidessa trading products,building on recent initiatives such as multi-asset support, advanced/algorithmictrading tools and pre, intra and post-trade analysis tools. In addition, we alsoexpect that opportunities will be created by the rapid pace of change within themarkets themselves. It is clear that there are still many ways in which themarkets can develop further and these are being driven both by regulatorychanges and customer pressure. We expect that 2007 will be a particularly activeyear with many different market pressures just some of which are: • Significantly increased volumes across all the markets; • Market consolidation such as New York Stock Exchange's acquisition of EuroNext, Chicago Mercantile Exchange (CME) merging with Chicago Board of Trade (CBOT) and NASDAQ's approach to the London Stock Exchange. • The introduction of new central market systems, such as the new London Stock Exchange Trading System, and new market initiatives taken by groups of investment banks such as Project Boat and Turquoise; • The creating of new ECNs and ATSs and the growing prevalence of dark pools of liquidity; • Regulatory changes such as RegNMS in the US and MiFID in Europe; • The trend within exchanges to move towards providing support for multiple asset classes, such as Chicago Board Options Exchange (CBOE) and International Securities Exchange (ISE) launching stock markets and NASDAQ launching options; • Increases in the number of ATSs, crossing-networks and regional exchanges challenging the dominance of the traditional exchanges; and • Exchanges creating new specialised data products that may require specialist functionality to support the ways in which they are traded. Fidessa Market Data Our market data business has continued to grow in terms of coverage and userpopulation throughout 2006. A total of 22 new markets have been added to Fidessaduring the year, delivering on our plan to become a global market data vendor.Our Asia-Pacific coverage increased significantly with the launch of our owndata collection "ticker-plant" in our data centre in Tokyo. This has allowed usto add direct feeds of real-time data from the Tokyo, Osaka, Fukuoka and Sapporoexchanges in Japan. We have also extended our coverage into the Middle East andEastern Europe with the addition of data for Dubai, Estonia, Latvia andLithuania. Our core coverage of Western markets has also been enhanced with theaddition of data from Iceland, the London Metal Exchange (LME) and theInternational Commodities Exchange (ICE) in Europe, as well as Pinks Sheets andthe Over-The-Counter Bulletin Board (OTCBB) in North America. We have alsofurther enriched our market data offering by extending our partnership with DowJones Newswires and adding their local-language European, North American andAsian regional news services. Delivering on our initiative to support multi-asset trading within Fidessa wehave added data for our first derivatives exchanges in Europe with real-timecoverage of the Euronext.liffe markets in London and Paris, and the Eurex marketin Germany. Further derivatives exchanges will become available in early 2007with the addition of the CBOT, the CME and the New York Mercantile Exchange(NYMEX) in the US and the remaining Euronext.liffe markets of Amsterdam,Brussels and Lisbon in Europe. We have added around 1,000 new data users during 2006 and now have over 3,500users across 220 clients receiving market data through the Fidessa productsuite. Our market data Workstation product won the "Systems in the City - BestInformation Display Service" award for the second consecutive year at theirawards ceremony in London. In support of our ongoing plans to expand the breadth of exchanges available fortrading through Fidessa, we have extended our static trading data coverage withthe addition of 27 new markets across Europe, Eastern Europe, the Middle East,Asia and North and South America. The ability to offer our own fully-managed, comprehensive and integrated marketdata service within the Fidessa solution is now a key feature of our productset, and provides us with a strong differentiator against many of ourcompetitors, particularly those incumbent in the new market segments we aretargeting. Fidessa Connectivity With our own data centres located in Europe, North America, Japan and Asia, theFidessa connectivity network provides genuinely global connections between thebuy-side and sell-side, between sell-sides and exchanges, to third partyIndication-of-Interest (IOI) and order routing networks, as well as to our owngrowing, remote broking and Retail Service Provider (RSP) networks. In additionto being fully integrated into the Fidessa suite of trading products, thisconnectivity network also supports direct links to clients running a variety ofother system solutions. The dramatic growth in brokers and buy-sides joining our global connectivitynetwork demonstrates the popularity and success of the Fidessa solution. In 2006the number of brokers on the network grew by around 60% to over 200, and thenumber of buy-sides that they serve through our network is now close to 1,000.The volume of activity on our network has also risen significantly with over 1.5million messages now being handled each business day on a global basis. Thisrepresents an increase of 400% over the year and with over 3,000 individualclient connections now running between these buy-side and sell-sideorganisations, the Fidessa connectivity network has become a vital source ofliquidity for participants in the world's financial markets. With many of the blue-chip brokers already available on the Fidessa connectivitynetwork, the focus of expansion has been on adding smaller domestic players whoprovide a highly specialised service for their local markets and, in the laterpart of 2006, we added our first brokers who support derivatives order flow aspart of our multi-asset initiative. During the year we have added specialistbrokers such as Wood & Company, who specialise on emerging eastern Europeanmarkets, Goodmorning Shinan covering Korea and AM Securities covering Malaysia. The number of brokers signed up to our own remote broking solution through theFidessa buy-side EMS Workstation has grown to 66, a rise of 230% since thebeginning of the year. The services offered by these brokers include DMAtrading, where the buy-side can trade a market directly under the broker'smembership, as well as the ever-expanding proprietary algorithmic tradingservices that a growing number of these brokers now offer. We also launched ourown pre-trade IOI distribution and display service across the Fidessaconnectivity network in 2006. This allows sell-side brokers to transmitpre-trade liquidity information to selected buy-sides, and buy-sides to view andtrade off these available broker IOIs, all within the Fidessa solution and thuswithout the need for external third-party IOI network connections. We continue to see a lot of interest in the ability to trade Asian and Japanesemarkets from both within these regions and outside. To satisfy this demand wehave expanded the number of local Asian and Japanese brokers on the Fidessaconnectivity network by 21 during 2006 and so we now offer 41 brokersspecialising in these regions. With the growing adoption of electronic connectivity by buy-sides for routingtheir executions and order flow, we have now extended the capabilities of ournetwork to allow them to also transmit "allocations" information to theirbrokers. Many buy-sides place orders for large tranches of stock which need tobe allocated across a number of the funds they manage. This "allocations"information can now be sent electronically by buy-sides across the same Fidessaconnectivity network they are using for their order flow. The automation of thisprocess is a key part of our straight-through-processing solution to clients andoffers improved efficiencies for them by eliminating re-keying of data,streamlining operational procedures and reducing the risk of human error. For sell-side brokers who trade financial markets as member firms, we haveincreased the number of trading gateways available through Fidessa to 71. Coreto this expansion has been the addition of direct trading links to the Eurex andEuronext derivatives exchanges in Europe as part of our multi-asset programme.We have also added a trading gateway for Dubai, our first trading interface forthe Middle East, as well as gateways for the eastern European markets in Riga,Tallinn, Vilnius and Warsaw. Direct trading links have also been added for theIceland stock exchange in Europe, the BATS Trading, DirectEdge, ISE and TrackECNs along with the NSX exchange in the US, Namibia in Africa and Thailand inAsia. Our European RSP network continues to offer one of the broadest choices ofdestinations available from one service, with the total number of RSP systemsnow standing at 24. 2007 will see the further expansion of our connectivity network globally, inparticular, with the addition of brokers who offer solutions for derivatives andthose that specialise in the new markets we are supporting, as well as with theaddition of new direct trading links. We expect to see many more Asian andJapanese brokers and buy-sides join the network as our connectivity solutiongains critical mass across this region. Company Name Change As our business grows it is becoming increasingly clear that we need to focusour marketing efforts behind a single brand in order to maximise the value ofthat brand. At the moment we have two separate brands with Fidessa, the product,better known in the market we serve and royalblue, the company, which contractswith customers and clients and is quoted in regulatory announcements. For thisreason we intend to propose a resolution at this year's AGM to change the nameof the listed entity from royalblue group plc to Fidessa group plc. At this timewe will also change the names of the trading companies to use the Fidessa name.This change will provide consistency and will enable us to deliver higher brandvalue throughout the market and media. 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 strengthened 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. In April 2006 the United States Court of Appeals for the Federal Circuitannounced its determination in the appeal. It determined that the lower courtdid not correctly interpret all the technical terms in the Markman claimsconstruction hearing and has referred the case back to the lower court. A newMarkman hearing will now be required, which means that the patent proceedings,started in June 2003, are for the most part restarted from the beginning and allprevious judgements no longer stand. The process of discovery has nowre-started. The Court of Appeals ruling refers to the definition of detailed technicalpoints and does not discuss the merits of the patent itself. The ruling does notaffect royalblue's view from the outset, that the case brought by Lava iswithout merit and royalblue will continue to defend its position vigorously. Outlook Looking ahead we expect the current market conditions will continue to befavourable and that from a structural point of view, the markets we serve arelikely to enter a particularly active period. In parallel our investmentprogramme will continue to deliver more products which will enable us to furtherincrease our addressable market. As a result we expect that we will see furtherstrong growth across 2007 at rates similar to those experienced in the secondhalf, although it is expected that the current strength of sterling could havesome impact if it is maintained for the year. In order to support the growth weanticipate that we will need to accelerate our investment in the necessarynetwork and data centre infrastructure as well as extend our market datacoverage. As a result we expect that capital expenditure will be at a higherrate in the coming year as we invest in this infrastructure. Looking further ahead, we remain confident that our strategy of providing anintegrated solution for multi-asset trading, market data and connectivityremains a compelling and valuable proposition within the market. In order todeliver against this strategy we will continue with our investment programmes,increasing the global coverage of our data services, expanding the connectivitynetwork and extending our product offerings. There is still substantial work tobe completed in order to achieve our vision and we envisage that our investmentprogrammes will continue throughout 2007 and beyond. enquiries: Chris Aspinwall, Chief Executive Edward Bridges/Haya Chelhot, 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 2006 2006 2005 Note £'000 £'000 Revenue 2 94,637 74,234Operating expenses 3 (82,754) (65,199)Other operating income 470 594Operating profit 12,353 9,629Finance income 5 1,941 1,707Profit before income tax 14,294 11,336Income tax expense 6 (3,983) (1,240)Profit for the year 10,311 10,096 Basic earnings per share 7 31.9p 31.6pDiluted earnings per share 7 30.9p 31.0p Interim dividend paid 4.3p 3.3pFinal dividend proposed 10 8.8p 7.0pTotal dividend proposed for the year 13.1p 10.3p Consolidated Balance Sheet at 31st December 2006 2006 2005 Note £'000 £'000AssetsNon-current assetsProperty, plant and equipment 9,828 8,757Intangible assets 9,922 7,984Deferred tax assets 3,711 3,165Other receivables 898 898Total non-current assets 24,359 20,804 Current assetsTrade and other receivables 8 20,940 18,615Income tax receivable 261 672Cash and cash equivalents 40,069 26,120Total current assets 61,270 45,407 Total assets 85,629 66,211 EquityIssued capital 3,356 3,272Share premium 15,715 11,743Translation reserve (1,466) (51)Retained earnings 36,841 27,241Total equity 54,446 42,205 LiabilitiesNon-current liabilitiesOther payables 719 548Deferred tax liabilities 931 1,264Total non-current liabilities 1,650 1,812 Current liabilitiesTrade and other payables 9 27,686 20,676Current income tax liabilities 1,847 1,518Total current liabilities 29,533 22,194 Total liabilities 31,183 24,006 Total equity and liabilities 85,629 66,211 Consolidated Statement of Changes in Shareholders' Equity Issued Share Translation Retained Total Note capital premium reserve earnings equity £'000 £'000 £'000 £'000 £'000 Balance at 1st January 2005 3,268 11,610 (206) 18,838 33,510 Profit for the period from theincome statement - - - 10,096 10,096Currency translation adjustments - - 155 - 155Total income and expensefor the period - - 155 10,096 10,251 Exercise of share options 4 133 - - 137Employee share incentive charges 3 - - - 538 538Current tax deduction recogniseddirect to equity 6 - - - 39 39Deferred tax recognised direct to equity 6 - - - 794 794Purchase of own shares byemployee share trust - - - (312) (312)Sale of own shares by employeeshare trust - - - 156 156Dividends paid - - - (2,908) (2,908)Balance at 1st January 2006 3,272 11,743 (51) 27,241 42,205 Profit for the period from theincome statement - - - 10,311 10,311Currency translation adjustments - - (1,415) - (1,415)Total income and expense forthe period - - (1,415) 10,311 8,896 Exercise of share options and warrants 84 3,972 - - 4,056Employee share incentive charges 3 - - - 735 735Current tax deduction recogniseddirect to equity 6 - - - 390 390Deferred tax recognised direct to equity 6 - - - 1,428 1,428Sale of own shares by employeeshare trust - - - 391 391Dividends paid - - - (3,655) (3,655)Balance at 31st December 2006 3,356 15,715 (1,466) 36,841 54,446 Consolidated Cash Flow Statement for the year ended 31st December 2006 2006 2005 Note £'000 £'000Cash flows from operating activitiesProfit before tax 14,294 11,336Adjustments for: Staff costs - share incentives 3 735 538 Product development amortised 3 5,026 4,373 Depreciation of property, plant and equipment 3 4,458 3,604 Amortisation of other intangible assets 3 367 152 Loss on sale of property, plant and equipment 3 32 4 Finance income (1,941) (1,707)Cash generated from operations before changesin working capital 22,971 18,300Movement in trade and other receivables (2,715) (5,653)Movement in trade and other payables 8,031 5,223Cash generated from operations 28,287 17,870Income tax paid (2,801) (3,808)Net cash generated from operating activities 25,486 14,062 Cash flows from investing activitiesPurchase of property, plant and equipment (6,210) (5,641)Proceeds from sale of property, plant and equipment 8 20Purchase of other intangible assets (473) (403)Product development 3 (6,874) (5,418)Interest received 1,366 1,197Proceeds from capital repayment ofTouchpaper "B" Loan Note 500 500Net cash used in investing activities (11,683) (9,745) Cash flows from financing activitiesProceeds from shares issued 4,056 137Purchase of own shares by employee share trust - (312)Proceeds from sale of own shares by employee share trust 391 156Dividends paid (3,655) (2,908)Net cash generated/(used) in financing activities 792 (2,927) Net increase in cash and cash equivalents 14,595 1,390Cash and cash equivalents at 1st January 26,120 24,590Effect of exchange rate fluctuations on cash held (646) 140Cash and cash equivalents at 31st December 40,069 26,120 Notes 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 2006 or 2005. Statutoryaccounts for 2005 have been delivered to the registrar of companies, and thosefor 2006 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. For further details see the Operations Review. Theoperations are monitored by the geographic regions of Europe, North America andAsia. Certain activities and costs are managed and monitored centrally. Taxassets and liabilities and the intangible asset for product developmentcapitalised are excluded from segment assets and liabilities. The segmentinformation in respect of the regions is presented below. NorthFor the year ended 31st December 2006 Europe America Asia Total £'000 £'000 £'000 £'000 Segment revenue 48,746 32,610 13,281 94,637Segment result 9,680 4,280 6,293 20,253Product development amortised (5,026)Central costs (2,874)Operating profit 12,353 Capital additions 3,955 2,019 709 6,683Depreciation and amortisation 2,664 1,791 370 4,825 Segment assets 51,985 14,078 6,190 72,253Unallocated assets 13,376Consolidated total assets 85,629 Segment liabilities 18,683 8,502 1,220 28,405Unallocated liabilities 2,778Consolidated total liabilities 31,183 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 3,756 Segment assets 36,676 12,840 5,302 54,818Unallocated assets 11,393Consolidated total assets 66,211 Segment liabilities 13,559 6,557 1,108 21,224Unallocated liabilities 2,782Consolidated total liabilities 24,006 3 Operating expenses 2006 2005 £'000 £'000 Staff costs - salaries 43,161 35,527Staff costs - social security 4,355 3,625Staff costs - share incentives 735 538Total staff costs 48,251 39,690Amounts payable to subcontractors 2,901 2,492Depreciation of property, plant and equipment 4,458 3,604Amortisation of intangible assets 367 152Product development capitalised (6,874) (5,418)Product development amortised 5,026 4,373Communications and data 13,239 8,519Operating lease rentals - property 3,556 2,539Operating lease rentals - plant and machinery 27 31Loss on sale of property, plant and equipment 32 4Exchange losses/(gains) 626 (747)Other operating expenses 11,145 9,960Total operating expenses 82,754 65,199 4 Staff numbers The average number of people employed by the Group during the year was asfollows: 2006 2005 Number Number Europe 398 338North America 257 206Asia 67 44Total average staff numbers 722 588 At 31st December At 31st December 2006 2005 Number Number Technical 479 351Product development 175 132Sales and marketing 79 53Management and administration 117 104Total staff numbers at 31st December 850 640 5 Finance income 2006 2005 £'000 £'000 Interest receivable on cash and cash equivalents 1,132 877Interest received on Touchpaper "A" and "B" Loan Notes 290 330Other interest receivable 19 -Capital repayment of Touchpaper "B" Loan Notes 500 500Total finance income 1,941 1,707 6 Income tax expense 2006 2005 £'000 £'000Current tax expense:Current year domestic tax 1,453 2,720Current year foreign tax 2,283 953Adjustments for prior years 122 (1,492)Total current tax expense 3,858 2,181 Deferred tax expense:Origination and reversal of temporary differences (421) (120)Benefit of tax losses recognised 546 (821)Total deferred tax expense 125 (941) Total income tax expense in income statement 3,983 1,240 Reconciliation of effective tax rate 2006 2006 2005 2005 £'000 £'000 Profit before tax 14,294 11,336Income tax using the domestic corporation tax rate 30% 4,288 30% 3,401Effective tax rates in foreign jurisdictions 439 (201)Expenses not deductible for tax purposes 195 148Tax incentives (516) (447)Tax credits utilised (249) (19)Non-taxable items (296) (150)Adjustment relating to prior years 122 (1,492)Tax expense and effective tax rate for the year 28% 3,983 11% 1,240 Tax recognised directly in equity 2006 2005 £'000 £'000 Current tax credit relating to equity settledshare incentives (390) (39)Deferred tax credit relating to equity settledshare incentives (1,428) (794) 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 845p (2005 587p) for the year. 2006 2005 £'000 £'000 Profit attributable to shareholders 10,311 10,096Less gain relating to capital repayment ofTouchpaper "B" Loan Notes (500) (500)Profit attributable to shareholders excluding gain 9,811 9,596Less tax adjustment from prior years - (1,492)Profit attributable to shareholders excluding gainand tax adjustment from prior years 9,811 8,104 2006 2005 Number '000 Number '000 Weighted average number of shares in issue 33,026 32,687Weighted average number of shares held bythe employee trusts (711) (761)Shares used to calculate basic earnings per share 32,315 31,926Dilution due to share options and warrants 1,037 691Shares used to calculate diluted earnings per share 33,352 32,617 Basic earnings per share excluding gain and taxadjustment from prior years 30.4p 25.4pDiluted earnings per share excluding gain andtax adjustment from prior years 29.4p 24.8pBasic earnings per share from tax adjustmentfrom prior years - 4.7pDiluted earnings per share from tax adjustmentfrom prior years - 4.6pBasic earnings per share excluding capital repayment 30.4p 30.1pDiluted earnings per share excluding capital repayment 29.4p 29.4pBasic earnings per share on gain relating tocapital repayment of Touchpaper "B" Loan Notes 1.5p 1.5pDiluted earnings per share on gain relating tocapital repayment of Touchpaper "B" Loan Notes 1.5p 1.6pBasic earnings per share 31.9p 31.6pDiluted earnings per share 30.9p 31.0p 8 Trade and other receivables Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Trade receivables 16,739 14,657 - -Amount due from subsidiaries - - 1,039 3,483Prepayments 1,973 1,639 319 1Accrued revenue 1,184 1,262 - -Other receivables 1,044 1,057 566 371Total trade and other receivables 20,940 18,615 1,924 3,855 9 Current liabilities; trade and other payables Group Company 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Trade payables 2,176 1,640 76 74Amount due to subsidiaries - - 56 269Accrued expenses 11,084 9,064 1,056 322Deferred revenue 12,276 8,327 - -Other taxes and social security 2,150 1,645 907 707Total trade and other payables 27,686 20,676 2,095 1,372 10 Dividend proposed The directors propose a final dividend for 2006 of 8.8 pence per share,£2,898,000, payable on 4th June 2007, with an ex-dividend date of 2nd May 2007.The dividend is subject to approval by shareholders at the Annual GeneralMeeting and has not been included as a liability in these financial statements. 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Fidessa Group