23rd Mar 2007 09:44
PLUS MARKETS GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
PLUS Markets Group plc (or "the Company") reports its preliminary results for the year ended 31 December 2006.
HIGHLIGHTS
* Turnover at GBP2.17 million (2005 - GBP1.45 million) up 49% on the previous
year;
* Loss for the year of GBP1.33 million (2005 - GBP1.36 million) with a loss
per share of 0.99p (2005 - 1.40p) a decrease of 29%;
* Over half a million trades, worth a total of nearly GBP3 billion,
representing over 5.75 billion shares, took place on the PLUS market.
POST BALANCE SHEET EVENTS
* Successful share placing to raise GBP25 million in January 2007;
* Application to become a Recognised Investment Exchange submitted to the
Financial Services Authority in March 2007.
Commenting on the annual report, Chief Executive Officer Simon Brickles said:
"With improving market share, a strengthened balance sheet post year end and afirst rate team, we have built a sound base for increasing our stock coverageand launching a wider challenge to the traditional exchange monopoly."
For further information, please contact:
Simon Brickles / Nemone Wynn-Evans 020 7553 2000PLUS Markets Group plc John Parry 020 7490 8062Rostron ParryCHAIRMAN'S STATEMENTPLUS Markets Group plc continued to evolve rapidly in 2006 and now has theresources in place to take advantage of the opportunities offered by "MiFID",the Markets in Financial Instruments Directive, which comes into effect inNovember 2007. The Company's final results as announced today are entirely inline with expectations and as predicted in my statement last year, the secondhalf has seen an improvement on the first. Had we decided to restrict ourselves to our existing business model, providingtrading and quotation services for smaller companies, it is likely that theCompany would have reported a trading profit within the first half of 2007,proving the viability of our model in 2006. For example, last year I reportedthat following the launch of our extended trading platform offering we had 12broker members. We have now 46 broker members and during the year under reviewover half a million trades, worth a total of nearly GBP3 billion, representingover 5.75 billion shares, took place on the PLUS market rather than ontraditional exchanges. Furthermore, the PLUS platform has an increasing market share of trading incertain segments of the main market such as those companies that comprise theFTSE Fledgling index. Indeed, in a sizeable proportion of companies yourCompany now has a majority of the trades - disproving the old City adage thatliquidity does not move.At the EGM on 8 January 2007, just after the period under review, shareholdersapproved a significant fund-raising of GBP25 million for the Company tostrengthen its balance sheet, extend its trading services in preparation forMiFID, and expand and promote the PLUS markets' current equity market offering.This successful placing gives your Company the resources that it needs toexpand its business model. During 2007, the Company intends to commencetrading the constituent companies of the FTSE 100 index and the remainingcompanies of the FTSE 250 index that are not already trading on our platform.We intend to commence trading these securities by 1 November 2007, at thelatest, when MiFID comes into effect in UK law. We also intend to develop thecapacity to trade the top 500 European securities, so that we have theopportunity to respond to further market demand. It is also the Company's intention to offer a commercially compelling chargingsystem. The traditional exchange model is becoming increasingly anachronisticand market participants are seeking reform. Your Company is similarlycommitted to providing competition and choice and is in tune with the driversthat are leading so many major users of markets to question the status quo.It is intended that this continuing rapid development of the PLUS market willposition your Company such that its offering will be commercially attractive ina post-MiFID environment, whether working in conjunction with other privateinitiatives, or being first to market ahead of potential competitors. The Company also expects to see more competition in providing trading servicesfor AIM companies. A statement by HM Treasury on 20 February 2007 hasinstigated a review by the Financial Services Authority about whether toliberalise the trade reporting regime for AIM companies. Liberalisation wouldincrease competition in this area as it has done in other parts of the market.By allowing AIM securities to be traded on the PLUS market without regulatoryencumbrance, the Company believes that this would be more in keeping with thespirit of MiFID and the drift of government policy in encouraging greatercompetition in the equity markets. Such competition is likely to increase theliquidity of these smaller companies by reducing the cost of trading. Insofar as the existing PLUS primary market for smaller companies is concerned,your Company's is very much an advocate of quality rather than quantity and weregard this as the key issue in the London smaller companies marketplace today.We believe that London must ensure that it enforces appropriate qualitycontrols on smaller companies to maintain its global reputation, and at PLUSMarkets Group we do not shirk from taking appropriate regulatory and commercialsteps to enforce proper market discipline. During the period under review, thePLUS branding was extended to our existing primary market for smallercompanies. We now seek to consolidate its market positioning performing as acompetitive quality market for small and mid-cap companies in our own right,and no longer as a feeder for other markets.Your Board has seen a number of significant changes recently. Following thesuccessful completion of the fund raising and having helped to see the Companythrough a period of rapid change, Helen Bagan and John Wedgwood have stood downas Non-executive Directors. I welcome two new Non-executive Directors, IanSalter and Giles Vardey, both of whom are, inter alia, former directors ofLondon Stock Exchange plc. I have no doubt that the contribution from suchexperienced market practitioners will prove invaluable to our new Board.At the executive level, Darren Francis stepped down as Chief Financial Officerfollowing the EGM. Brian Taylor, who has already taken up this role, brings awealth of financial experience and knowledge of trading platforms to the Boardsupporting your Company's ambitions. Additionally, Cyril Theret has joined theBoard as Business Development Director.Your Company has applied to the Financial Services Authority to become aRecognised Investment Exchange ("RIE"), and this process is proceeding in linewith our expectations. At senior management level, the Company has also made anumber of new appointments and I am confident that your Company now has theright team and resources in place to realise its plans of attaining thisstatus. Upon being granted RIE status - as your Board hopes and expects - wewill launch new market segments to service the needs of investment trusts,REITS and structured products and bring competition to these parts of the UKequity market for the first time.Your Company's expansion proposals as announced at the time of the Placingrepresent a sea-change in the scale of our operations. The Placing is enablingthe Company to fund a further substantial extension of our trading andquotation services including into more liquid securities. This expansion oftrading will involve a further significant investment in our trading capacity.In the current year, therefore, the Company will invest in major additionalinfrastructure. These costs will precede any additional revenue. This willimpact the Company becoming profitable in the current year. However, thisinvestment will benefit your Company in the medium term.At PLUS Markets Group, we look forward with great excitement to a year thatwill see us providing a market in offering full UK equity stock coverage with astatus as a fully competitive stock exchange for London, competing across theboard in both the secondary and primary markets. Stephen Hazell-SmithChairman23 March 2007
OPERATIONAL AND FINANCIAL REVIEW
OPERATIONAL REVIEW
The period under review saw continuing rapid operational growth, including aconcerted sales initiative to increase the number of PLUS Broker Dealer membersin the first half of the year. During the period the Company also merged itsmarket offering under the single brand of "PLUS". This was a significantproject involving staff across the Company, as well as numerous externalparties including the customer base.
The branding exercise concluded a redefinition of the Company's market offering. Equity securities can now be admitted to trading on the PLUS platform by either being Officially Listed through the FSA or quoted on AIM (known as "PLUS-traded securities" or via the Company's own primary market (known as "PLUS-quoted securities").
RISK MANAGEMENT
The Company has adopted systems and controls that enable it to identify the general, operational, legal and market risks, wherever they arise in its activities.
As part of the application to attain RIE status the Company must demonstrate tothe Financial Services Authority that procedures are in place to identify,measure and control the different types of risk; responsibility for riskmanagement is allocated to persons with appropriate knowledge and expertise;and sufficient, reliable information is provided to key individuals and, whererelevant, the governing body of the RIE.
A comprehensive exercise to identify the principal areas of risk assessed risks in terms of their likelihood and impact. All risks considered to have a potentially severe or significant impact were deemed to be of low or medium likelihood and specific controls have been put in place in respect of each identified serious risk.
The main risks identified are:
* the reliance on IT and the importance of robust systems (in common with all
exchanges);
* the importance of growing service volumes; * the need for rigorous and vigilant credit control procedures to ensure the
realisation of debtors; and * the need to comply with Financial Services Authority regulations.
FINANCIAL REVIEW
Turnover at GBP2.17 million (2005 - GBP1.45 million) was 49% up on the previousyear. This was primarily due to the introduction of two new revenue streamsfrom:
* Trading Services - PLUS Broker Dealer and Market Maker membership; and * Market Data Services - licences to distributors and terminal sales to end-
users.
There were 60 new admissions to the PLUS primary market (2005 - 44) an increaseof 36% and the number of PLUS-quoted issuers on the market at the end of 2006stood at 185 (2005 - 154) an increase of 19%. Total administrative expenditure was GBP3.41 million (2005 - GBP2.70 million).This included one-off costs of approximately GBP119,000 relating to thebranding exercise. The increased expenditure was entirely in line with theCompany's budgets and expectations and resulted from increased regulatory andIT headcount and trading service costs pertaining to the extension of thebusiness model.
The loss for the year was GBP1.33 million (2005 - GBP1.36 million) with a loss per share of 0.99p (2005 - 1.40p) a decrease of 29%.
Shareholders' funds at the year end stood at GBP2.63 million (2005 - GBP3.73million) and cash decreased by GBP1.10 million (2005 - increase of GBP1.10million). Following the post-balance sheet event of the successful placing of178,571,429 new ordinary shares at 14p each in January 2007, the cash positionstood at GBP25.59 million, GBP22.14 million more than at the start of 2006.Brian TaylorChief Financial Officer23 March 2007
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2006
Note 2006 2005 (Restated) GBP GBP Turnover 1 2,168,734 1,446,458 Administrative expenses (3,414,006) (2,697,172) Share based charge 2 (209,283) (209,858) Operating loss (1,454,555) (1,460,572) Interest receivable 120,954 97,866 Loss on ordinary activities before (1,333,601) (1,362,706)
taxation
Tax on loss on ordinary activities - - Loss on ordinary activities after (1,333,601) (1,362,706)
taxation and retained loss for the year
Basic and diluted loss per share (0.99)p (1.40)p
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006
2006 2005 GBP GBP FIXED ASSETS Intangible assets 500,000 500,000 Tangible assets 250,125 442,197 Investments 929 929 751,054 943,126 CURRENT ASSETS Debtors and prepayments 1,586,419
600,132
ACCRUED INCOME 4,168
1,806
Cash at bank and in hand 2,347,633 3,448,982 3,938,220 4,050,920
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE
YEAR Creditors and accruals (465,659) (399,782) Deferred income (1,594,992) (861,324) (2,060,651) (1,261,106) Net current assets 1,877,569 2,789,814 Total assets 2,628,623 3,732,940 CAPITAL AND RESERVES Called up share capital 6,730,635 6,726,635 Share premium 1,524,275 1,508,274 Profit and loss account (5,626,287) (4,501,969) Equity shareholders' funds 2,628,623 3,732,940
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006
Note 2006 2005 GBP GBP Net cash outflow from operating A (1,152,192) (1,176,136) activities Returns on investments and servicing of finance Interest received 120,954 97,866 Interest paid - - Net cash inflow from returns on 120,954
97,866
investments and servicing of
finance Taxation UK corporation tax paid - - Capital expenditure Payments to acquire tangible (90,112) (366,022) fixed assets Rental deposit/cash cover - 169.000 relating to loan financing Net cash outflow from capital (90,112) (197,022)
expenditure
Financing
Proceeds on issue of ordinary 20,001
2,469,715
share capital
VAT rebate on previous share - 69,380 issues Net loan financing - (166,667) Net cash inflow from financing 20,001 2,372,428 (Decrease)/Increase in cash B (1,101,349) 1,097,136
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
A. Reconciliation of operating loss to net cash outflow from operating activities 2006 2005 GBP GBP Operating loss (1,454,555) (1,460,572) Depreciation 282,184 169,530 Share based charge 209,283 209,858 Increase in debtors (988,649) (248,592) Increase in creditors 799,545 153,640
Net cash outflow from operating activities (1,152,192) (1,176,136)
B. Analysis of changes in net funds during the year 2006 2005 GBP GBP Balance at 1 January 3,448,982 2,351,846
Net cash inflow / (outflow) (1,101,349) 1,097,136
Balance at 31 December 2,347,633 3,448,982 Represented by: At 31 December Cash flows At 31 December 2005 GBP 2006 GBP GBP Cash in hand and at bank 3,448,982 (1,101,349) 2,347,633
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements are prepared in accordance with applicable United
Kingdom law and accounting standards (UK GAAP). The particular accounting
policies adopted are described below. Accounting convention
The financial statements are prepared under the historical cost convention.
Turnover Turnover represents amounts derived from the provision of services which fall within the Company's ordinary activities after deduction of value
added tax, all of which arise in one business segment and one geographical
region, the United Kingdom. The turnover and pre-tax loss are attributable
to the operation of the PLUS market. Deferred income arises on annual
issuer and membership fees of the market and the trading service that are
invoiced in advance of the service being provided. Share based charge
The Company has adopted FRS 20 'Share-based Payment,' application of which
is mandatory for periods commencing on or after 1 January 2006. FRS 20
requires the recognition of share-based payments to employees at fair value
at the date of grant. Prior to the adoption of FRS 20, the Company recognised the financial effect of the share based payment in accordance with UITF Abstract 17 (revised 2003) 'Employee Share Schemes.' In
accordance with transitional provisions of FRS 20, the standard was applied
retrospectively to all options granted after 7 November 2002 that were not
yet vested as of 1 January 2006.
The Company issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding
the effect of non market-based vesting conditions) at the date of grant.
The fair value determined at the grant date of the equity-settled share-
based payments is expensed over the vesting period, based on the Company's
estimate of shares that will eventually vest and adjusted for the effect of
non market-based vesting conditions.
Fair value is measured by use of the QCA-IRS Option Valuer(TM) (based on the
Black -Scholes-Merton model). The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of non- transferability, exercise restrictions, and behavioural considerations. For the year ended 31 December 2005, the change in accounting policy has
resulted in an increase in the loss before and after tax of GBP209,858. For
the year ended 31 December 2006, the impact of share-based payments is a
charge of GBP209,283. Net assets do not change. The 2005 comparative
figures have been restated to take account of the effect of the introduction
of FRS 20. Operating Leases Rentals paid under operating leases are charged to the profit and loss account on a straight-line basis. Intangible fixed assets
The right to operate the PLUS market is valued at cost of acquisition less
provision for any impairment. Tangible fixed assets Depreciation is provided on cost in equal monthly instalments over the estimated useful lives of the assets. For all fixed assets, namely,
furniture and fittings, office equipment and computer equipment this is at
the rate of 33 1/3% per annum. Investments
Investments held as fixed assets are carried at cost less a provision for
impairment, if required. Deferred taxation
Deferred taxation is provided in full on timing differences that result in
an obligation at the balance sheet date to pay more tax, or a right to pay
less tax, at a future date, at rates expected to apply when they
crystallise based on current tax rates and law. Timing differences arise
from the inclusion of items of income and expenditure in taxation
computations in periods different from those in which they are included in
financial statements. Deferred tax assets are recognised to the extent that
they are regarded as more likely than not to be recovered. Deferred tax balances are not discounted. Company profit and loss account
The Company has taken advantage of section 230 of the Companies Act 1985 not
to present its own profit and loss account. The Company's profit for the
financial year ended 31 December 2006 amounted to GBP67,649 (2005 -
GBP34,865), comprising interest received, administrative expenses and the
write-off of inter-company indebtedness at 31 December 2005 (see note 11).
2. SHARE-BASED CHARGE
The Company has a share option scheme for employees of the Group. Options
are exercisable at a price equal to the average quoted market price of the
Company's shares on the date of grant. The vesting period is three years.
If the options remain unexercised after a period of seven years from the
date of grant, the options expire. Options may be forfeited if the employee
leaves the Group before the options vest.
Details of the share options outstanding during the year are as follows: ------------------------------------------------------------------------------
| | 2006 | Weighted | 2005 | Weighted || | No. of share | average | No. of share | average || | options | exercise | Options | exercise || | | price | | price |
------------------------------------------------------------------------------
|Outstanding at | 9,809,106| 25p| 2,166,833| 25p ||beginning of | | | | ||period | | | | |
------------------------------------------------------------------------------
|Granted during | 995,000| 32.75p| 8,977,273| 25p
|
|the period | | | |
|
------------------------------------------------------------------------------
|Forfeited | | 25p| | 25p ||during the | (2,172,273)| | (1,335,000)| ||period | | | | |
------------------------------------------------------------------------------
|Exercised | (80,000)| 25p| -| - ||during the | | | | ||period | | | | |
------------------------------------------------------------------------------
|Expired during | -| -| -| -
|
|the period | | | |
|
------------------------------------------------------------------------------
| | | | |
|
------------------------------------------------------------------------------
|Outstanding at | 8,551,833| 25p| 9,809,106| 25p ||the end of the | | | | ||period | | | | |
------------------------------------------------------------------------------
| | | | |
|
------------------------------------------------------------------------------
|Exercisable at | 165,000| 25p| -| - ||the end of the | | | | ||period | | | | |
------------------------------------------------------------------------------
The weighted average share price at the date of exercise for share options
exercised during the period was 28.5p. The options outstanding at 31
December 2006 had a weighted average exercise price of 25p, and a weighted
average remaining contractual life of 8.6 years. In 2006, options were
granted on 18 May. The aggregate of the estimated fair values of the
options granted on that date is GBP60,685 as at 31 December 2006. In 2005,
options were granted on 11 March, 17 March, 4 May and 16 December. The aggregate of the estimated fair values of the options granted on those dates is GBP1,121,240. The inputs into the QCA-IRS Option Valuer(TM) are as follows:
---------------------------------------------------------
| | 2006 | || | | 2005 |
---------------------------------------------------------
|Weighted average share price | 27p| 27p| --------------------------------------------------------- |Weighted average exercise price| 25p| 25p| --------------------------------------------------------- |Expected volatility
| 46%| 46%|
---------------------------------------------------------
|Expected life |3.5 years| 3.5 years|
---------------------------------------------------------
|Risk free rate | 4.4%| 4.4%|
---------------------------------------------------------
|Expected dividend yield | 0%| 0%|
---------------------------------------------------------
Expected volatility was determined by reference to the historical volatility
of the Group's share price over the previous two years, modified by the
increased liquidity of ordinary shares following the placing in January
2007. The expected life used in the valuation has been adjusted, based on
management's best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The Group recognised total expenses of GBP209,283 relating to equity-settled
share-based payments in 2006 (2005 - GBP209,858).
3. POST BALANCE SHEET EVENTS
On 8 January 2007, PLUS Markets Group plc undertook a successful Placing of
178,571,429 new Ordinary Shares at 14 pence per share to raise GBP25 million
before expenses. This is a significant equity fundraising for the Company
and the Placing Shares represent 57.02 per cent. of the enlarged issued share capital. The funding is to support significant new business opportunities available to the Company as a result of factors such as potential global exchange consolidation and the changing regulatory framework under MiFID which is due to be implemented from November 2007.
The Company has also applied for Recognised Investment Exchange (RIE) status
and is updating its technology platform. On 27 February 2007, PLUS Markets Group plc entered into guarantee arrangements with its subsidiary to guarantee the liabilities of the subsidiary to the extent of the Group's balance sheet, while leaving a buffer of GBP5 million.
4. REGISTRATION
The Company is incorporated in Great Britain.
5. The financial information contained in this preliminary report does not
constitute the Company's statutory accounts within the meaning of Section
240 of the Companies Act 1985. The financial statements for 2006 have been
audited and will be delivered to the Registrar of Companies following the
annual general meeting. The auditors have reported on the 2006 statements;
their report was unqualified and did not contain a statement under section
237(2) or (3) of the Companies Act 1985. The unqualified audited financial
statements for 2005 were delivered to the Registrar of Companies. A copy of the Company's annual report for 2006 will be mailed to shareholders shortly and will also be available for collection from the Company's registered office and posted on the Company's website in due course.
PLUS Markets Group plcRelated Shares:
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