Last checked at 27 Oct 2010 07:00
27 October 2010
First Derivatives plc
("First Derivatives", the "Group" or the "Company")
Interim results for the six months ended 31 August 2010
First Derivatives (AIM: FDP.L, IEX:GYQ.I), a leading provider of software and consulting services to global investment banks and hedge funds, today announces its results for the six months ended 31 August 2010.
Financial Highlights
·; Turnover £17.7m (2009: £11.4m) +56.2%
·; EBITDA £3.9m (2009: £3.4m) +16%
·; Operating profit £3.1m (2009: £3.0m) +3.3%
·; Pre-tax profit £3.2m (2009: £3.1m) +5.9%
·; Earnings per share 15.6p (2009: 15.4p) +1.3%
·; Net Assets £21.7m (2009: £12.5m) +74.4%
·; Interim dividend of 2.9p per share (2009: 2.75p) +5.2%
Business Highlights
·; Sales of our Delta software range up by 158%
·; Software sold into new markets including the Exchanges market and the data management market
·; Launch of the Group's first SaaS product in the FX market
·; Capital Markets Consulting sales up by 26%
·; Significant progress in integrating the acquisition of Cognotec into the Group
David Anderson, Chairman of First Derivatives commented:
"Over the last twenty-four months the Group has been in a period of transformation, investing in R+D and infrastructure to allow it to offer software products as well as services to its client base and ensure it has a strong platform to facilitate global expansion. This major investment program has been implemented without impacting profitability and we have maintained the growth momentum of previous years.
"We plan to continue investing, not only in building a global sales team and recruiting R+D staff, but also in the physical infrastructure required to deliver a Software as a Service capability. During the period under review the Group successfully launched one such product, our Delta eFX platform and we now have seven clients trading and billions of dollars of transactions per day are being processed through our data centres. Our software is now sold on a transactional basis and on an annualised licence model which helps increase revenue visibility and improves planning. The pipeline for our Delta range of software products is encouraging and with the continued expansion of our consulting division we remain confident of achieving profits for the year in line with market expectations."
For further information please contact:
First Derivatives +44 (0)28 3025 2242
Brian Conlon, Managing Director www.firstderivatives.com
Graham Ferguson, Finance Director
Charles Stanley Securities, Nominated Adviser +44 (0)20 7149 6000
Russell Cook
Carl Holmes
Goodbody Stockbrokers, EMI Adviser +353 1 667 0410
Diane Hodgson
Linda Hickey
Finbarr Griffin
Walbrook PR
Bob Huxford +44 (0)20 7933 8783
Helen Westaway
Stakeholder Communications
Carl Whyte +44 (0) 2890 339949
John Hart
About First Derivatives
First Derivatives is a global provider of software and consulting services to the financial services industry. With almost 15 years experience working with leading financial institutions, it continues to deliver technologically advanced, award winning products and services that anticipate and respond to the evolving needs of global capital markets.
First Derivatives currently employs over 500 people worldwide and counts many of the world's top investment banks, brokers and hedge funds as its customers. It has operations in London, New York, Stockholm, Singapore, Toronto, Sydney, Dublin, Newry and Hong Kong.
CHAIRMAN'S STATEMENT
Financials
Revenues for the six months ended 31 August 2010 increased 56.2% to £17.7m, from £11.4m in the corresponding period of the previous year. Pre-tax profit for the period was £3.3m, against £3.1m, up by 5.9%. Earnings per share for the period were 15.6p, an increase of 1.3% (2009: 15.4p).
Dividend
The group continues to generate a strong operating cash flow and this, along with our retained cash of £4.2m at the period end, allows the board to announce the payment of an interim dividend of 2.9p per share (2009: 2.75p), an increase of 5.2%. This will be paid on 8 December 2010 to those shareholders on the register on 12 November 2010. The shares will be marked ex-dividend on 10 November 2010.
Software
Software sales are up 158% on the same period last year. This absolute growth has been accompanied by a change in our revenue mix - software now accounts for 38% of total revenue as opposed to 23% in the same period last year. This growth was due to sales of existing products and sales of new products. We now have revenue flowing from more than 40 software customers. Our investment in research and development for the Delta product suite continues apace with a major new release of an integrated product suite of mature and new products delivered by the R+D team in October.
Licencing Model and SaaS
Previously the Group sold software using an annualised license model. The Group now has the infrastructure to operate a SaaS model following the Cognotec acquisition. We have made a significant investment in expanding this capability and now have data centres in Belfast, Dublin, Chicago, New Jersey and Slough. The main advantage of this model is the low barriers to entry for prospective customers and the transactional revenue model associated with it. Many of our products will be available for sale under both models but both models allow us to secure a continued and visible stream of software revenue.
Initial set up costs for the SaaS model are significant and this has impacted on first half profitability. These costs will continue to impact in the second half of the year but as the product scales our efficiency will increase.
The Delta Range of Software Products
The Delta range of products share a common technology platform. This allows us to integrate the products seamlessly and to efficiently roll out new niche products as part of the portfolio. This approach enables us to increase the size of our potential market, create cross-selling opportunities and to establish a common brand identity.
The products solve the practical business problems associated with dealing with processing massive volumes of data in real-time. Our flagship software products include;
Delta Stream - Annual Licence model
Delta Stream, our tick data management and CEP engine has a myriad of potential uses across all asset classes in the Capital Markets and other industry sectors. As well as securing sales to banks we were also pleased to announce our first sale of the Delta Stream software solution to the Exchange Market (Singapore Exchange).
Delta eFX - SaaS model
In May we launched Delta eFX our retail and institutional FX trading platform. Since launch we have signed up seven new customers for this revenue sharing product which include AFT in Japan and brokers in New Zealand, Switzerland, Israel and the USA. We now have 22 Liquidity providers signed up to the platform and consider our liquidity pool to be a market leading service. Total transactional volume is now measured in $ billions per day. The success of our FX platform has given us the confidence to plan to add new asset classes such as precious metals and energy to the platform.
Delta Algo - Annual Licence or SaaS model
Delta Algo is targeted at hedge funds and proprietary trading desks. Our first customer completed implementation of the product in the period and is trading successfully. A major new sale was secured in the period and the addition of a SaaS capability has helped to improve the pipeline.
Delta RDF - Annual Licence or SaaS model
Data management is a constant challenge for institutions as not only is the volume of data ever increasing but the applications and users of this data continue to expand also. We are well positioned to meet this challenge for our target market over the coming periods with our Reference Data Factory product. We were pleased to announce during the year the winning of a major software contract with Algorithmics. The pipeline for this product is growing and we remain confident of winning further sizeable contracts over the coming periods.
Consultancy
Consulting sales were up 26% on the same time last year showing another period of strong growth. The depth and range of services we can offer customers continues to expand which has given us the ability to secure new customers while expanding our footprint within our existing customer base. It remains a challenging market in which to sell services but we consider it a testimony to our people and the quality of our service that we continue to grow our business in this environment.
We have continued to invest heavily in staff and training and we are now into the second year of our successful Options Program. A strong recruitment drive has continued throughout the period such that total headcount across the group is now over 500.
The acquisition of Lakefront Data, announced on 2 August 2010, brought with it data management consulting experience, an area of potential growth and a sector in which we had limited exposure in the past. The acquisition further bolsters the range of services we can provide to our client base and enhances our presence in the North American market.
Outlook
Over the last-twenty four months the Group has been in a period of transformation, investing in R+D and infrastructure to allow it to offer software products as well as services to its client base and ensure it has a strong platform to facilitate global expansion. This major investment program has been implemented without impacting profitability and we have maintained the growth momentum of previous years.
We plan to continue investing, not only in building a global sales team and recruiting R+D staff, but also in the physical infrastructure required to deliver a Software as a Service capability. During the period under review the Group successfully launched one such product, our Delta eFX platform and we now have seven clients trading and billions of dollars of transactions per day are being processed through our data centres. Our software is now sold on a transactional basis and on an annualised licence model which helps increase revenue visibility and improves planning. The pipeline for our Delta range of software products is encouraging and with the continued expansion of our consulting division we remain confident of achieving profits for the year in line with market expectations.
Consolidated Statement of Comprehensive Income
6 months ended31 August2010 | 6 months ended31 August2009 | 12 months ended28 February2010 | ||
(unaudited) | (unaudited) | (audited) | ||
£'000 | £'000 | £'000 | ||
Revenue | 17,736 | 11,358 | 25,476 | |
Cost of sales | (11,081) | (6,383) | (15,111) | |
Gross profit | 6,655 | 4,975 | 10,365 | |
Administrative expenses | (4,092) | (2,519) | (5,207) | |
Other income | 558 | 564 | 1,134 | |
Results from operating activities | 3,121 | 3,020 | 6,292 | |
Financial income | 2 | 5 | 8 | |
Financial expenses | (274) | (222) | (475) | |
Finance translation (charge)/credit | (35) | 253 | (234) | |
Net financing costs | (307) | 36 | (701) | |
Income from associates | 423 | 54 | ||
Profit before tax | 3,237 | 3,056 | 5,645 | |
Income tax expense | (891) | (944) | (1,858) | |
Profit for the period | 2,346 | 2,112 | 3,787 | |
Pence | Pence | Pence | ||
Earnings per ShareBasic | 15.6 | 15.4 | 27.1 |
Consolidated Statement of changes in equity
Sharecapital | Sharepremium | Sharesoptionreserve | Fair value reserve | Reval- uation reserve | Currency translation adjustment reserve | Retainedearnings | Totalequity | ||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
Balance at 1 March 2009 | 69 | 2,274 | 430 | 223 | - | 244 | 8,031 | 11,271 | |||||
Deferred tax on share options outstanding | - | - | 219 | - | - | - | - | 219 | |||||
Net loss on net investment in foreign subsidiary | - | - | - | - | - | (780) | - | (780) | |||||
Net gain on hedge of movement in foreign subsidiary | - | - | - | - | - | 386 | - | 386 | |||||
Total income and expense recognised directly in equity | - | - | 219 | - | - | (394) | - | (175) | |||||
Profit for the period | - | - | - | - | - | - | 2,112 | 2,112 | |||||
Total recognised income and expense | - | - | 219 | - | - | (394) | 2,112 | 1,937 | |||||
Shares issued | - | 23 | - | - | - | - | - | 23 | |||||
Share based payment charge | - | - | 161 | - | - | - | - | 161 | |||||
Transfer on exercise or lapse | - | - | (4) | - | - | - | 4 | - | |||||
Dividends to equity holders | - | - | - | - | - | - | (922) | (921) | |||||
Balance at 31 August 2009 | 69 | 2,297 | 806 | 223 | - | (150) | 9,225 | 12,470 | |||||
Balance at 1 March 2010 | 72 | 3,906 | 983 | - | 174 | 694 | 10,481 | 16,310 | |||||
Deferred tax on share options outstanding | - | - | 283 | - | - | - | - | 283 | |||||
Net loss on net investment in foreign subsidiary | - | - | - | - | - | 318 | - | 318 | |||||
Net gain on hedge of movement in foreign subsidiary | - | - | - | - | - | (206) | - | (206) | |||||
Total income and expense recognised directly in equity | - | - | 283 | - | - | 112 | - | 395 | |||||
Profit for the period | - | - | - | - | - | - | 2,346 | 2,346 | |||||
Total recognised income and expense | - | - | 283 | - | - | 112 | 2,346 | 2,741 | |||||
Shares issued | 5 | 3,373 | - | - | - | - | - | 3,378 | |||||
Share based payment charge | - | - | 294 | - | - | - | - | 294 | |||||
Transfer on exercise or lapse | - | - | - | - | - | - | - | - | |||||
Dividends to equity holders | - | - | - | - | - | - | (975) | (975) | |||||
Balance at 31 August 2010 | 77 | 7,279 | 1,560 | - | 174 | 806 | 11,852 | 21,748 | |||||
Consolidated statement of financial position
As at31 August2010 | As at31 August2009 | As at28 February2010 | |||
(unaudited) | (unaudited) | (audited) | |||
£'000 | £'000 | £'000 | |||
Property, plant and equipment | 18,350 | 18,270 | 17,938 | ||
Intangible assets | 24,551 | 11,423 | 22,278 | ||
Other financial assets | 7,527 | 1,872 | 7,710 | ||
Deferred tax asset | 922 | 481 | 518 | ||
Total non-current assets | 51,350 | 32,046 | 48,444 | ||
Current assets | |||||
Trade and other receivables | 8,573 | 6,544 | 9,725 | ||
Cash and cash equivalents | 4,163 | 1,608 | 1,711 | ||
Total current assets | 12,736 | 8,152 | 11,436 | ||
Total assets | 64,086 | 40,198 | 59,880 | ||
Current liabilities | |||||
Interest bearing borrowings | (4,342) | (945) | (4,574) | ||
Trade and other payables | (6,432) | (5,110) | (8,319) | ||
Current tax payable | (1,387) | (1,320) | (1,417) | ||
Employee benefits | (2,005) | (1,128) | (1,714) | ||
Contingent deferred consideration | (6,872) | (1,204) | (5,147) | ||
Total current liabilities | (21,038) | (9,707) | (21,171) | ||
Non-current liabilities | |||||
Interest bearing borrowings | (17,015) | (12,971) | (17,703) | ||
Deferred tax liability | (820) | (87) | (679) | ||
Contingent deferred consideration | (2,138) | (4,963) | (2,395) | ||
Provisions | (350) | - | (645) | ||
Trade and other payable | (977) | - | (977) | ||
Total non-current liabilities | (21,300) | (18,021) | (22,399) | ||
Total liabilities | (42,338) | (27,728) | (43,570) | ||
Net assets | 21,748 | 12,470 | 16,310 | ||
Equity | |||||
Share capital | 77 | 69 | 72 | ||
Share premium | 7,279 | 2,297 | 3,906 | ||
Shares option reserve | 1,560 | 806 | 983 | ||
Fair value reserve | - | 223 | - | ||
Revaluation reserve | 174 | - | 174 | ||
Currency translation adjustment reserve | 806 | (150) | 694 | ||
Retained earnings | 11,852 | 9,225 | 10,481 | ||
Total equity | 21,748 | 12,470 | 16,310 |
Consolidated statement of cashflows
6 months ended31 August2010 | 6 months ended31 August2009 | 12 months ended28 February2010 | |||
(unaudited) | (unaudited) | (audited) | |||
£'000 | £'000 | ||||
Cashflows from operating activities | |||||
Profit before taxation | 3,237 | 3,056 | 5,645 | ||
Associate income | (423) | - | - | ||
Finance income | (2) | (258) | (8) | ||
Finance expense | 309 | 222 | 709 | ||
Operating profit | 3,121 | 3,020 | 6,346 | ||
Depreciation | 285 | 220 | 336 | ||
Amortisation of intangible assets | 575 | 181 | 619 | ||
Equity settled share-based payment transactions | 180 | 110 | 197 | ||
4,161 | 3,531 | 7,498 | |||
Change in trade and other receivables | 1,152 | (210) | (2,990) | ||
Change in trade and other payables | (1,818) | 1,346 | 5,454 | ||
3,495 | 4,667 | 9,962 | |||
Corporation tax paid | (507) | (1,115) | (1,648) | ||
Net cash from operating activities | 2,988 | 3,552 | 8,314 | ||
Cash flows from investing activities | |||||
Interest received | 2 | 5 | 8 | ||
Acquisition of subsidiary | (614) | (1,482) | (5,443) | ||
Acquisition of property, plant and equipment | (459) | (893) | (1,099) | ||
Acquisition of associate | - | - | (4,189) | ||
Acquisition of intangible assets | (958) | (241) | (1,323) | ||
Received from associates | 654 | - | - | ||
Net cash used in investing activities | (1,375) | (2,611) | (12,046) | ||
Cash flows from financing activities | |||||
Proceeds from issue of share capital | 3,379 | 23 | 47 | ||
Receipt of new long term loan | - | 539 | 9,726 | ||
Repayment of borrowings | (889) | (642) | (1,354) | ||
Payment of finance lease liabilities | (31) | (47) | (70) | ||
Interest paid | (274) | (222) | (475) | ||
Effects of exchange rate changes on cash and cash equivalents | (250) | 639 | (423) | ||
Dividends paid | (975) | (922) | (1,314) | ||
Payment of deferred consideration | (121) | - | (1,993) | ||
Net cash from financing activities | 839 | (632) | 4,144 | ||
Net increase in cash and cash equivalents | 2,452 | 309 | 412 | ||
Cash and cash equivalents at start of period | 1,711 | 1,299 | 1,299 | ||
Cash and cash equivalents at end of period | 4,163 | 1,608 | 1,711 |
Notes to the Interim Results
1 Basis of Preparation
The results for the six months ended 31 August 2010 are unaudited and have not been reviewed by the Company's Auditors. They have been prepared on accounting basis and policies that are consistent with those used in the preparation of the financial statements of the Company for the year ended 28 February 2010.
The financial statements contained in this report do not constitute statutory accounts within the meaning of Article 248 of the Companies (Northern Ireland) Order 1986 (as amended by Article 12 of the Companies (Northern Ireland) Order 1990. The results for the period ended 28 February 2010 were prepared under International Financial Reporting Standards (IFRSs) as adopted by the EU ("adopted IFRSs") and reported on by the auditors and received an unqualified audit report. Full accounts for the period ended 28 February 2010 have been delivered to the Registrar of Companies.
2 Segmental Reporting
Revenue by division
Consultingdivision | Softwaredivision | Total | ||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Total Segment Revenue | 11,062 | 8,773 | 6,674 | 2,585 | 17,736 | 11,358 |
Revenue by geographical location
Europe | America | APAC | Total | |||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Revenue from external customers | 8,914 | 4,948 | 7,484 | 5,966 | 1,338 | 444 | 17,736 | 11,358 |
3 Dividends
An Interim Dividend of 2.9p per share is proposed for the six months to 31 August 2010. This will be paid to shareholders on 8 December 2010 to shareholders on the register on 12 December 2010. The shares will be Ex-Dividend on 10 November 2010.
4 Earnings per Share
The earnings per share for the six months ended 31 August 2010 has been calculated on the basis of the profit after taxation of £2.346m. Earnings per share of 15.4 pence have been calculated based on the weighted average number of ordinary shares for the period being 15,042,374.
5 Interim Report
Copies of the interim report can be obtained from the Company's head and registered office: 3 Canal Quay, Newry, Co. Down, BT35 6BP and is available to download from the Company's website www.firstderivatives.com.