RNS Number:2089Z
Royalblue Group PLC
29th July 2002
royalblue group plc
interim results for the six months ended 30th June 2002
royalblue reports operating profits up by 22%* and major new contracts signed
6 months to 30 June 12 months to 31 Dec
2002 2001 Change 2001
Turnover* £29.3m £25.2m +16% £56.2m
Operating profit* £3.9m £3.2m +22% £8.1m
Diluted earnings per share* 8.5p 7.1p +20% 17.8p
Dividend per share 1.75p 1.6p +9% 4.8p
Cash balance £12.1m £11.1m +9% £11.7m
Highlights for the six months ended 30th June 2002:
• $11 million Royal Bank of Canada order for fidessa signed.
• 5 new fidessaNet orders signed.
• Strong pipeline in North America.
• UK fidessaNet reached break-even.
• Recurring revenues now represent 35% of total revenues.
• fidessa rental fees and fidessaNet service fees up over 100%.
Chief Executive, Chris Aspinwall, said:
"Market conditions have continued to be challenging throughout the first half of
2002. In spite of this, we have continued to make progress with revenues up by
16% and operating profit up by 22% over the same period last year. The business
has remained cash generative during the first half with cash balances increasing
to £12.1 million and the sale of our holding in ICIS Technology Limited, which
was announced in July, will further strengthen our cash position in the second
half by £3.6 million. The Group remains debt free. We continue to follow
accounting practices which the directors believe are amongst the most
conservative in the industry.
There has been a shift in the profile of our business as our customers respond
to financial pressures by reducing both the amount of consultancy they take as
well as putting pressure on consultancy rates. We expect that this pressure will
continue until conditions start to ease. However, in parallel, revenues from
fidessa rentals and fidessaNet services continue to grow as customers implement
more software to reduce their operating costs. This has meant that compared to
the first half of last year, we have experienced growth in consultancy revenue
of 4%, whilst fidessa rental fees and fidessaNet service fees have both
experienced growth of over 100%. As a result, recurring revenues now represent a
greater proportion of our business at 35%, up from 26% in the same period last
year.
Looking ahead we expect that the current difficulties in the financial markets
will continue and could indeed worsen further before starting to improve.
However, despite this, we are still finding new sales opportunities in each of
our regions and we have a particularly strong pipeline in North America. As a
result, we believe that further growth is possible although we anticipate that
the overall growth for the full year will be lower than that achieved in the
first half.
In summary, whilst the challenging market conditions continue to make
forecasting particularly difficult, we believe that the underlying strength of
our product set, coupled with the financial strength of the Group, position us
well for further progress in the future."
* In order to bring clarity to the performance of the continuing business of the
Group the table above excludes the results of royalblue technologies which was
divested on 16th July 2001. The full Consolidated Profit & Loss Account can be
found on page 7 of this announcement.
Financial Summary
In the six months to 30th June 2002, revenues from continuing operations grew to
£29.3 million, an increase of 16% from £25.2 million for the same period last
year. Overseas revenues increased to £14.5 million compared to £12.4 million
last year, accounting for 49% of the total revenues. The breakdown of the
revenues is that consultancy represented 60% (2001: 68%), fidessa licence rental
was 19% (2001: 10%), maintenance was 10% (2001: 11%) and fidessaNet service
rental was 6% (2001: 3%). In total, the recurring revenues were £10.3 million,
up 72% on the same period last year.
Operating profit from continuing operations grew 22% to £3.9 million with an
operating margin of 13.1%, up from 12.5% in 2001. All product development was
expensed in the operating profit with 18% of employees focused on this activity.
Diluted earnings per share increased by 20% to 8.5p for the continuing
operations.
The business continues successfully to generate cash and at 30th June 2002 the
cash balance had increased to £12.1 million. The cash position will be further
strengthened in the second half by the £3.6 million net proceeds from the sale
of our holding in ICIS Technology Limited and the £0.5 million first loan note
repayment by Touchpaper Software Limited (the HelpDesk business divested in July
2001). The Group has no debt, nor any goodwill write off or deferred
consideration payable for previous acquisitions. An interim dividend of 1.75p
per share (2001: 1.6p) will be paid on 30th September 2002 to shareholders on
the register on 30th August 2002.
There are general concerns in the market regarding the accounting practices of
all public companies. The directors believe that royalblue's accounting
practices are amongst the most conservative in the industry and some of the key
elements are:
• The majority of our consultancy revenue is from time and materials
work with the revenue recognised as work is performed and invoiced.
• The majority of our licence revenue comes from rentals where revenue
is recognised as the software is actually used. For outright licences the
revenue is recognised on a percentage complete basis for the implementation
project as a whole.
• No product development expenditure, internal development costs or
pre-contract costs are capitalised, all being expensed as incurred.
• Depreciation of fixed assets is over a short life, such as two years
for computer hardware.
Operations
Introduction
As widely experienced by all companies servicing the financial markets,
conditions have remained challenging throughout the first half of 2002. In spite
of this, we have continued to make progress resulting in increased revenues and
profits over the same period last year. Across all regions we are seeing
increased demand for our connectivity software providing links to exchanges,
ECNs and the buy-side institutions and we believe that this demand will continue
as firms look to reduce the cost of handling order flow. We are also seeing
demand growing steadily for fidessaNet where the full service model can provide
short term cost benefits and we have signed five new orders in the period, with
a total expected value of £4.4 million over two years.
Within the Enterprise business (where customers run the software on their own
systems), we have seen continued activity as we roll out more software. This has
been particularly focused on supporting the many exchange upgrades, market
changes, more connectivity services and routing of order flow across national
boundaries. We have also signed two significant rental deals in the first half.
One, with the Royal Bank of Canada, is for a US domestic trading system and
includes connectivity to the Canadian market. This deal is expected to be worth
around $11 million over five years. The second is a renewal for ABN Amro
covering their global operation and including a new implementation of fidessaNet
for their US domestic trading operation. This second deal is expected to be
worth £8.2m over two to three years. These deals provide further proof of the
ongoing value fidessa products can continue to add to the largest Enterprise
customers' businesses despite the current market conditions.
As a result of recent sales the UK fidessaNet operation has achieved break-even
six months earlier than anticipated whilst the US fidessaNet operation is still
on plan to achieve break-even by the end of 2003. Overall, recurring revenues
have continued to strengthen, up by 72% and representing 35% of total revenue.
Europe
Activity in Europe has been concentrated around:
• Increased connectivity to exchanges and also to buy-side firms both
directly and through fidessaNet.
• Support for a number of mandatory upgrades across the markets
including the move to a new IP network by the London Stock Exchange.
• The implementation of multi-centre order routing and position
management functionality as customers integrate their operations more closely
across national boundaries.
• Implementation of more fidessaNet customers.
Exchange activity continued throughout the first half with upgrades required for
Xetra, Virt-X, Euronext (for Paris Amsterdam and Brussels), Stockholm, Helsinki,
Copenhagen, Oslo, Milan, London and also a new interface to Johannesburg which
was implemented from the UK. An increasing number of customers are now switching
to take connectivity through fidessaNet rather than managing it themselves as
this generates significant cost benefits.
Looking ahead to the second half, a number of changes are expected which will
generate further opportunities for fidessa:
• Euronext is planning a major upgrade to connectivity and is moving the
French, Dutch, and Portuguese derivatives across to Liffe Connect.
• Deutsche Borse is releasing Xetra 7 which will require a mandatory
upgrade. A Central Counterparty is also scheduled for introduction in the first
quarter of 2003.
• NASDAQ Europe plans to go live with a hybrid quote and order market.
• SWX & Virt-X are planning a mandatory technical upgrade followed by a
major upgrade in the fourth quarter.
New product initiatives that are currently being developed and targeted into
Europe include:
• A new version of the ROMA (remote order management) workstation which
is designed to enable remote offices to access central order management
functionality.
• A new lightweight fidessaNet workstation targeted at smaller customers
(typically below 10 traders) which provides basic market data as well as the
ability to route and execute order flow.
• New product to support the alignment of the cash and portfolio
businesses which will cover portfolio and basket trading.
• A new version of CTAC (V2.3), our middle office product, which has
been enhanced to provide a number of new features including bulk confirmations,
web-based confirmations and matching multiple client trades to single broker
trades.
North America
In North America, our business has continued to develop with revenues up by 16%
and a strong sales pipeline in place. Structural changes as well as the common
theme of electronic connectivity that we are seeing across all locations look
set to help our business to continue to develop in the North American market.
Examples of some of these structural market changes are:
• SuperMontage, the new combined order and quote driven market within
Nasdaq, has resulted in the requirement for significant new trading
functionality. SuperMontage is scheduled to go live at the end of July.
• The requirement for a price-point consolidated order book which
enables traders to find the best price and depth across multiple markets and
liquidity points.
• The growing use of fee based trading which is the new trading model
being used by many Nasdaq MarketMakers.
As well as new products to support the market changes, we are also releasing new
packaging for existing products to target specific functionality. This includes,
for example, the packaging of SuperMontage and price-point consolidated order
book software into a smaller workstation product. This functionality lends
itself well to a simple and quickly installed product and provides an easy entry
point into fidessa and fidessaNet for customers who have other products or their
own systems.
Connectivity both to liquidity points, such as exchanges and ECNs, and to
buy-side customers is becoming increasingly important throughout all our
regions. During the first half of 2002 we have developed further links to
connect the major buy-side firms to broker-dealers and now have connectivity to
six of the major buy-side networks as well as direct connection to three major
firms. This means we can now receive order flow from in excess of 300 buy-side
firms.
We are also investigating growing opportunities for leveraging our connectivity
to the NYSE by providing connections to enable buy-side institutions to route
order flow through to the NYSE floor.
In the Canadian market we have signed a fidessa rental deal with the Royal Bank
of Canada which, in addition to incorporating support for the US domestic
market, also includes connectivity to the Toronto Stock Exchange and CDNX
(formerly the Vancouver Stock Exchange).
Asia
Throughout Asia, the markets have remained nervous during the first half of
2002. However, we are continuing to find opportunities for software to connect
to the main markets and have increased the number of Asian exchanges we support
to eight. We are also starting to see interest in direct connectivity to some of
the secondary markets such as Malaysia, Thailand, Philippines and Indonesia. We
have connected two additional clients to the Taiwan market and have also put our
first client live on the Korean market with others expected to follow. Market
changes continued in a number of centres and in Japan, the Kinyucho (Japanese
Financial Agency) amended the short sale rules making it a violation to sell
short at a price which was the same or less than the last trade price. A number
of firms breached this rule, as it is difficult to implement manually, and we
have taken the opportunity to modify fidessa to provide automatic protection for
our customers.
As in Europe, there has been significant activity throughout Asia providing
support for cross border order flows. We have now rolled out fidessa software
across a number of our customers' Asian offices and as a result have trading
workstations installed in the majority of the region's financial centres
including Hong Kong, Japan, Singapore, Taiwan, Korea, India, Malaysia, Thailand,
Philippines, Australia and New Zealand.
Product Development
Throughout the first half we have maintained our product development
expenditure. In addition to the numerous new developments and extensions to the
product set mentioned in the regional summaries above, we have also commenced
the marketing of the new V5 product set. The first phase of this is completing
development with rollout scheduled to begin from summer 2002. The new V5 product
consists of a new version of the core trading platform and new versions of each
of the trading applications. The V5 product set is being delivered as a gradual
rollout and compatibility is being maintained between V5 products and the
current product set.
The fidessa V5 product set is based on the next generation database technology
which provides a number of important enhancements including high speed indexing
and a 64 bit architecture delivering substantial performance improvements on all
systems, and much better scalability for very large systems. Maximum order and
execution throughput is increased by more than 10 times on the new platform.
The data footprint has also been substantially reduced which, combined with
performance improvements, means that smaller hardware can be used to run the
same applications. This provides benefits to Enterprise customers reducing the
cost of operating fidessa and also reduces royalblue's cost of operating the
fidessaNet service. All fidessa applications will be rolled out as part of the
V5 program and these will use the new architecture to provide substantial
functional benefits such as global order management, order grouping and order
hierarchies. The new platform also provides the technology and business
infrastructure for new applications including Portfolio/Basket and Cross
Regional Transaction Management.
fidessaNet
Our fidessaNet operation has continued to make progress with five additional
sales for the full service offering and three additional sales for the
connectivity service during the first half. fidessaNet service revenue increased
by in excess of 100% over the same period last year.
Implementation was completed for three new full service fidessaNet clients and,
with the systems currently being implemented, we expect the total number of
fidessaNet trading workstations to approach 500 by the end of the year. The
average volume processed per month by fidessaNet during the first half of 2002
was 65,000 orders with 180,000 executions. This represents a 67% increase on the
average order volumes recorded in the last half of 2001.
Connectivity was added to the Helsinki Stock Exchange, the Chicago Stock
Exchange, the Boston Stock Exchange and the Bloomberg ECN. A number of
electronic buy-side interfaces have been made available, including connectivity
to the major buy-side networks with links to the Indications of Interest (IOI)
services also available.
The pipeline for fidessaNet continues to be strong and we anticipate further
sales to new customers in both the UK and the US in the second half.
Employees
The staff numbers at 30th June were 517, up 10% on the same time last year. On
behalf of royalblue's shareholders the Board extends its thanks to all the Group
's employees for the exceptional commitment and professionalism they have shown
in meeting the challenges caused by the current market conditions.
Outlook
Looking ahead, we expect that the current difficulties in the financial markets
will continue and could worsen further before starting to improve. It is clear
that we cannot be immune from the effects of current market conditions and we
expect that this will mean a period of slower growth. However, our focus in
providing software which helps our customers to automate their business flows
has enabled us to achieve a position where we can play a key part in helping our
customers to reduce their costs. This has been tangibly reflected in that,
despite the ongoing difficulties faced by our customers, we have continued to be
able to sell fidessa and fidessaNet systems to new clients as well as continuing
sales into our existing client base. We believe that the current pressure we are
inevitably facing on consultancy revenue is a transient condition, which will
turn quickly when markets improve, and that the overall strength of our business
is reflected in the strong growth in the software and fidessaNet revenues.
We have continued and will continue our product development programme,
maintaining our investment level so that we bring more and better product to
market. This has meant that not only have we provided software to meet the
mandatory market changes, but have also developed a substantial revision to our
underlying technology which will continue to provide both functional and
performance benefits over the coming years. We feel that this development,
combined with our sound business model and strong financial position, represent
a compelling message for both new and existing customers when looking for a
strategic partner to work with in the current turbulent markets.
enquiries:
John Hamer, Chairman Alastair Hetherington, Financial Dynamics
Chris Aspinwall, Chief Executive Edward Bridges, Financial Dynamics
Andy Malpass, Finance Director Ben Way, Financial Dynamics
www.royalblue.com Tel: 0207 831 3113
Tel: 01483 206300 Fax: 01483 206301 Fax: 0207 831 6341
Consolidated Profit and Loss Account
for the six months ended 30th June 2002
2002 2001 2001
6 months 6 months 12 months
to 30th June to 30th June to 31st December
Unaudited Restated Restated
Notes £'000 £'000 £'000
Turnover
Continuing operations 2 29,315 25,166 56,174
Discontinued operations - 9,527 10,079
_______ _______ _______
29,315 34,693 66,253
Operating profit/(loss)
Continuing operations 3,853 3,154 8,096
Discontinued operations - (1,302) (1,550)
Exceptional item: loss on sale of discontinued - - (2,658)
operations _______ _______ _______
Profit on ordinary activities before interest and 3,853 1,852 3,888
taxation
Net interest receivable 131 173 309
_______ _______ _______
Profit on ordinary activities before taxation 3,984 2,025 4,197
Taxation on profit on ordinary activities 3 (1,292) (1,035) (2,145)
_______ _______ _______
Profit on ordinary activities after taxation 2,692 990 2,052
Dividends paid and proposed 4 (518) (462) (1,396)
_______ _______ _______
Retained profits for the period 2,174 528 656
_______ _______ _______
Earnings per share: 5
Basic - continuing operations 9.2p 7.8p 19.8p
Diluted - continuing operations 8.5p 7.1p 17.8p
Basic - total operations 9.2p 3.4p 7.1p
Diluted - total operations 8.5p 3.1p 6.4p
Consolidated Statement of Total Recognised Gains and Losses
for the six months ended 30th June 2002
2002 2001 2001
6 months 6 months 12 months
to 30th June to 30th June to 31st December
£'000 £'000 £'000
Profit for period 2,692 990 2,052
Differences on exchange on re-translation of net (104) 23 44
assets of overseas undertaking
Prior year adjustment 1,033 - -
_____ _____ _____
Total recognised gains and losses 2,588 1,013 2,096
_____ _____ _____
Consolidated Balance Sheet
at 30th June 2002
2002 2001 2001
30th June 30th June 31st
December
Unaudited Restated Restated
£'000 £'000 £'000
Fixed Assets
Intangible fixed assets - 550 -
Tangible fixed assets 5,032 7,856 6,019
Investments 49 49 49
Investment in own shares 2,206 2,360 2,351
7,287 10,815 8,419
Current assets
Debtors 18,613 23,707 16,596
Cash at bank and in hand 12,140 11,122 11,674
30,753 34,829 28,270
Creditors: Amounts falling due (16,937) (26,686) (17,648)
within one year
Net current assets 13,816 8,143 10,622
Total assets less current 21,103 18,958 19,041
liabilities
Creditors: Amounts falling due (467) (3) (493)
after more than one year
______ ______ ______
Net assets 20,636 18,955 18,548
______ ______ ______
Capital and reserves
Called up share capital 3,064 3,020 3,046
Share premium account 10,371 8,702 9,953
Other reserves - 309 -
Profit and loss account 7,201 6,924 5,549
______ ______ ______
Total equity shareholders' funds 20,636 18,955 18,548
______ ______ ______
Consolidated Cash Flow Statement
for the six months ended 30th June 2002
2002 2001 2001
6 months 6 months 12 months to
to 30th to 30th 31st December
June June
Unaudited Unaudited Audited
£'000 £'000 £'000
Operating profit 3,853 1,852 6,546
Depreciation charge 1,466 1,652 3,031
Goodwill amortisation charge - 15 17
Charge for share options granted at less than the - 46 46
market price
(Increase)/decrease in working capital (2,981) (203) 78
Other items 7 7 3
_______ _______ _______
Net cash inflow from operating activities 2,345 3,369 9,721
Returns on investments and servicing of finance 131 173 309
Taxation paid (698) (417) (1,982)
Capital expenditure and financial investments (572) (1,638) (4,120)
Acquisitions - - (1,276)
Equity dividends paid (936) (892) (1,354)
_______ _______ _______
Net cash inflow before financing 270 595 1,298
Management of liquid resources 78 500 (1,000)
Financing 162 86 33
_______ _______ _______
Increase in cash 510 1,181 331
_______ _______ _______
Notes to The Interim Statement
1. Basis of preparation
The interim financial statements are unaudited but have been reviewed by
KPMG Audit Plc and their report is set out below. The interim statement has been
prepared on the basis of the accounting policies as set out in the annual
statements for the year ended 31st December 2001.
The financial information contained in this interim statement does not
amount to statutory accounts within the meaning of section 240 Companies Act
1985. The figures for the year ended 31st December 2001 are extracted from the
statutory accounts of royalblue group plc, except with regard to deferred tax as
noted below. The statutory accounts for that year have been reported on by the
company's auditors and delivered to the Registrar of Companies. The report of
the auditors was unqualified and did not contain a statement under section 237
(2) or (3) Companies Act 1985.
2. Analysis of turnover
Turnover is analysed by geographic destination as follows:
2002 2001 2001
6 months to 6 months to 12 months to
30th June 30th June 31st December
Unaudited Unaudited Audited
£'000 £'000 £'000
Continuing operations
United Kingdom 14,830 12,777 29,674
USA & Canada 8,343 7,179 15,810
Continental Europe 2,018 1,204 2,179
Rest of World 4,124 4,006 8,511
_______ _______ _______
29,315 25,166 56,174
_______ _______ _______
3. Taxation
The charge for taxation for the six months ended 30th June 2002 reflects
the anticipated effective rate for the period.
In December 2000 the Accounting Standards Board published Financial
Reporting Standard 19 Deferred Tax. Compliance with the new standard is
mandatory for accounting periods ending on or after 23rd January 2002 and the
standard has been adopted in the preparation of these interim financial
statements. Comparative figures have been restated.
Deferred tax is now recognised in respect of all timing differences that
have originated but not reversed by the balance sheet date. Deferred tax assets
are recognised to the extent that they are regarded as recoverable.
4. Dividend on ordinary shares
An interim dividend of 1.75p pence per share is declared and will be paid
on 30th September 2002 to shareholders on the register on 30th August 2002.
5. Earnings per share
The calculation of basic earnings per share is based on the profit
attributable to shareholders divided by 29,318,422 ordinary shares (2001:
28,777,649 ordinary shares). The number of shares is based on the weighted
average number of shares in issue during the period less the shares owned by the
royalblue group plc Employee Benefit Trust. The number of shares in issue at
30th June 2002 was 30,639,240 (2001: 30,203,020).
The diluted earnings per share is based on 31,795,312 ordinary shares (2001:
31,978,058 ordinary shares). The diluted earnings per share have been calculated
using an average share price of 529p (2001: 916p).
6. Post balance sheet event
As announced on 4th July 2002 the Group disposed of its minority stake trade
investment in ICIS Technology Limited ("ICIS") to Siemens Holdings Plc. ICIS
was formed in 1989 as an operating division of royalblue. Following a strategic
review of its operations in 1992, royalblue divested the business by means of a
buy-out backed by the ICIS management team, and retained a minority
shareholding. Since that date royalblue has had no operational involvement in
the business and has treated its holding as a trade investment at cost. ICIS is
a major supplier of software products to power companies operating in the UK and
abroad. In the year to 31st March 2002 ICIS reported operating profits of £1.4
million and net assets of £2.7 million.
The consideration is entirely in cash with initial consideration of £4.0 million
generating a one-off exceptional gain of £3.6 million for royalblue in the
current year. There is further consideration of £0.1million payable subject to
certain conditions being met at completion, and then additional performance
related consideration of up to £0.9 million subject to results for the period to
30th September 2004.
7. Circulation to shareholders
Copies of this interim report will be sent to shareholders and copies will be
available to the public at the Company's registered office, Dukes Court, Duke
Street, Woking, Surrey GU21 5BH.
Independent Review Report by KPMG Audit Plc to royalblue group plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 6 to 11 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30th June 2002.
KPMG Audit Plc
Chartered Accountants
Crawley
26th July 2002
This information is provided by RNS
The company news service from the London Stock Exchange