RNS Number:6896P
Financial Objects PLC
10 March 2008
10 March 2008
Financial Objects plc
Preliminary Results for the twelve months ended 31 December 2007
Financial Objects plc ("Financial Objects" or "the Group"), an international
supplier of financial software solutions for banking, wealth management and risk
management, reports a year of strong growth in profit.
Highlights for the twelve months ended 31 December 2007:
* Third year of continuous growth
* Operating profit* up 30% to �3.0 million (2006: �2.3 million)
* Operating profit margin* up to 14% (2006: 12%)
* Cash net of borrowings of �4.8 million (2006: �2.8 million)
* Increase of 50% in proposed dividend to 1.5p (2006: 1.0p)
2007 2006
� million � million Growth
Revenue 21.2 19.9 7%
Operating profit* 3.0 2.3 30%
Profit before taxation 2.8 2.0 40%
Adjusted earnings per share** 7.0p 5.5p 27%
Dividend per share 1.5p 1.0p 50%
* excluding amortisation of acquired intangible assets
** excluding deferred tax and amortisation of acquired intangible assets
Commenting on the results, Paul Fullagar, Chairman said:
'I am pleased to report that 2007 returned a third successive year of growth for
your company. Operating margins across the Group have continued to rise and
operating cash flow remains strong. We have significantly strengthened our
management team during the year, laying the foundation to continue growing both
organically and by acquisition.'
For further information, please contact:
Financial Objects plc Tel: 020 7836 3010
Karim Peermohamed, Chief Executive Officer
Peter Youngs, Finance Director
Financial Dynamics Tel: 020 7831 3113
James Melville-Ross
Matt Dixon
Evolution Securities Limited
Stuart Andrews Tel: 020 7071 4300
Chairman's Statement
I am delighted to report a third successive year of growth for your business.
In 2007 our strategy focused on continuing to improve financial performance,
strengthening the management team, and investing in product development and
sales. We have made good progress in all of these areas.
Profitability increased significantly, cash generation in the year was strong,
and the year ended with cash net of borrowings of �4.8 million. On the back of
this impressive financial performance, and reflecting our confidence in
continued growth, the Board proposes to raise the final dividend by 50% to 1.5p
per share.
We remain focused on delivering financial services software. Within this, we
have three main products: banking, wealth management and risk management. We
believe that each of these product areas is capable of considerable organic
growth at attractive margins. In addition, having successfully integrated two
major acquisitions, the Group continues to monitor opportunities for further
growth through complementary acquisitions.
Financial results
Group revenues increased by 7% to �21.2 million (2006: �19.9 million), of which
�8.4 million (40%) was from contracted maintenance revenues, �8.8 million from
services and �4.0 million from licences. Out of the total of �12.8 million of
revenue from services and licence sales, �7.5 million came from existing
customers.
Operating profit for 2007, before amortisation of acquired intangible assets
(�0.3 million), increased by 30% to �3.0 million (2006: �2.3 million), and
operating margins increased to 14%, compared to 12% last year. In the second
half of the year, operating profit before amortisation of acquired intangibles
was �1.6 million, compared to �1.4 million in the first half.
The Group made a profit before tax of �2.8 million, an increase of 40% (2006:
�2.0 million). There is no material corporation tax chargeable in the year.
The Group has gross tax losses in excess of �6.0 million available for offset
against future profits.
Basic earnings per share are 6.2p (2006: 6.2p); 2006 benefited from the
recognition of a deferred tax credit of �0.6 million. Adjusted to exclude
amortisation of acquired intangibles and deferred tax, the earnings per share
have increased by 27% to 7.0 pence from 5.5 pence.
Operating cash flow was �2.4 million (2006: �2.2 million). After the payment of
the dividend of �0.4 million and capital expenditure of �0.5 million, offset by
the receipt of �0.5m from the issues of shares as a result of the exercise of
options, the Group generated net cash of �2.0 million (2006: �0.2 million). The
Group's cash net of borrowings at the end of the year was �4.8 million (2006:
�2.8 million).
The Group has adopted IFRS reporting for the first time.
Banking Division
A new head of banking was appointed in October 2007, the sales team has been
expanded and a number of other key management changes effected. Although it is
likely that the impact of these changes will not be fully felt until the second
half of 2008, we are already seeing improvements, particularly in sales
prospects.
Banking systems sales of �9.5 million accounted for 45% of the Group's turnover
in the year ended 31 December 2007 (2006: �11.4 million, 57%). Operating
margins were 20% (2006: 22%). The banking division's revenues are underpinned
by contracted maintenance revenues of �5.0 million, 52% of the division (2006:
�5.0 million, 44%).
Within the banking division, our products focus on the international commercial
banking market place - IBIS S2 - and the domestic retail market place -
activebank. Our sales efforts are focused on mid-tier banks that are looking to
expand their own businesses - examples of existing customers in this area
include Monte dei Paschi di Siena, Banco Sabadell and Alpha Bank.
Our sales team is also targeting the growing markets of Southern Africa, Central
Europe and the Asian subcontinent (traditionally these markets are driven to buy
software solutions to gain new customers and markets and to improve their cost
to income ratios). For example, this year we have already closed one deal with
a French bank based in South Africa for a new deal capture and treasury
management solution.
The challenge for retail banks is to retain existing customers and attract new
ones with new savings products, multi channel payments solutions and products to
facilitate wealth management. Our banking solutions address all these areas and
in combination with our wealth management solutions will ensure that we are well
placed to address the changing needs of our banking customers.
A further area of major focus for the banks in the coming years will be
increasing levels of sophistication of their credit risk management systems. We
are expecting to see growth in late 2008 from selling our risk management
products into the banking sector.
We remain mindful of the general market conditions, however we believe that our
strategy of focusing on these growth areas, and seeking opportunities to cross
sell with our other divisions, will continue to limit our exposure to the
sub-prime related slowdown.
Wealth Management Division
We further strengthened our management team in 2007 with the appointment of a
new divisional director; we have also begun the process of growing our sales
team with the appointment of a new sales director. In addition, we are
embarking on direct sales campaigns with the banking team to cross sell our
software into the banking market place and it was pleasing that we have had a
number of wins with our banking clients. As with banking, the benefit of these
changes will take time to come through. However, our delivery capability has
continued to improve, and we are already seeing better margins.
Sales of our wealth management software at �3.4 million accounted for 16% of
Group turnover in the year to 31 December 2007 (2006: �2.4 million, 12%).
Revenues grew by 42% year on year. Operating margins improved significantly to
9% (2006: 2%).
The market for wealth management is large and growing. The World Wealth Report
from CapGemini and Merrill Lynch forecasts high net worth individuals' wealth to
reach US$51.6 trillion by 2011, an annual growth rate of 6.8%. We have seen
strong growth in the uptake of new technology solutions by private family
investment offices, retail banks moving more into the wealth management market,
and from developing countries substantially expanding their wealth management
offerings.
We are focusing on areas where there is a clear demand for new technology, for
example Central Europe and Northern Europe (where we have a strong existing
presence with clients including Svenska Handelsbanken and Swedbank). In
addition, we are looking to exploit our existing presence in India where the
assets under management in the Wealth market are forecast to grow by 30% per
annum (source Celent).
We deliver functionality principally in the area of portfolio management and
client reporting. The TowerGroup has identified these two areas as key for
asset managers and private bankers as they look to grow their businesses. Our
solution allows our clients excellent analysis of portfolios, with risk
profiling a major feature of our software's capabilities. Our solution will
deliver functionality to address portfolio measurement by, for example, asset
class and / or customer grouping.
Risk Management Division
Sales of the risk management division at �4.3 million accounted for 20% of Group
turnover in the year to 31 December 2007 (2006: �1.9 million, 10%). Revenues
grew by 126% year on year, while margins improved to 23% (2006: 4%). The
division began with the acquisition of Raft in March 2006, and the first full
year of ownership has been very successful, built on a strong foundation of
product development and an expanded customer base.
Our principal product focuses on managing credit risk. Financial Services
companies require solutions which will allow them to analyse their exposure to
individuals or corporations to whom credit facilities have been granted (loans,
mortgages, etc). In addition, organisations that trade energy commodities
require solutions to manage their credit and counterparty exposure.
Our main focus to date has been on the energy trading market place with our
primary source of growth in 2007 coming from our energycredit product. We
believe the worldwide demand for sophisticated credit risk systems in the energy
trading market continues to increase.
energycredit is a suite of software products designed to support the complete
credit risk management process for energy companies in both the wholesale
trading and retail arenas. It provides advanced exposure calculation and limit
monitoring, credit rating and scoring, collateral management, legal contract
management, potential future exposure modelling and finally a reporting and
workflow tool to monitor, control and manage these processes. With our market
leading credentials for our energycredit product, which is demonstrated by a
substantial contract with Shell Trading which was delivered on time and on
budget in 2007, we expect to continue to prosper in this market. Other clients
using energycredit include RWE, E.ON, TXU, FPL Energy and Calpine.
In 2007 we developed an updated version of the energycredit product, extending
its functionality and creating a new thin client version which allows access via
the internet and through web portals. Due to this investment we believe we have
maintained our position as market leader for this type of software.
The market for risk management solutions that monitor current and future
exposures in energy trading companies and banking organisations, both of whom
place emphasis on managing their credit risk exposure, is growing. In the
energy trading sector, the worldwide spending on energy trading and risk
management solutions (ETRM) in 2007 was estimated by Energy Insights to have
been over $700m and we estimate a third of this relates to credit risk
solutions.
Other software products
Sales of our other software products of �4.0 million continued to make a useful
and solid contribution, accounting for 19% of the Group's turnover in the year
to 31 December 2007 (2006: �4.2 million, 21%). Operating margins improved to
22% (2006: 18%).
Within this division, we have a number of software solutions serving specialist
areas within the financial services market. These include fairs, a product for
Independent Financial Advisers; genisys, a document management solution; and
gvas, property asset management software for maintaining large property
portfolios. These products successfully serve niche markets within the UK
market.
Technology and Development Strategy
All of our core solutions use Microsoft technology as an enabler to delivering
strong functionality. In 2007 we embarked on a major review of all our products
and we now have clearly defined product roadmaps for onward technology and
functional improvement. In 2007 we delivered a new thin client version of our
credit risk management solution and have begun working closely with Microsoft to
develop the next generation of our solutions which will be based on a common
architecture.
Our ambition is to make full use of new technologies such as Silverlight and
Microsoft Workflow Foundation as well as making use of the new features in SQL
2008 and Windows Server 2008. We believe we will be able to enhance our
customers' user experience and allow them to make full use of lower cost
hardware and software as they deploy our solutions. We are one of Microsoft's
top 20 financial services ISVs (Independent Software Vendors) in Europe and in
the top 100 globally
Our development centre in Bangalore now employs almost 50% of the Group's staff
and is an important part of our growth strategy. It allows us to undertake
product development as described above, and to compete effectively for
development projects with our clients; we would also expect to utilise the
centre to incorporate new products if we make further acquisitions.
Board
As announced in October 2007, with effect from 1 January 2008, Jon Lee has
joined the Board as a non-executive director. Jon brings considerable intellect
and experience to the Board. He has a successful track record at Board level in
the software industry, notably in the provision of technology to the financial
sector, having previously held the position of CEO at Clearswift and London
Bridge Software. He also has considerable experience in M&A activity. The
combination of these skills will enable him to make a significant contribution
to our continued growth and success.
People
I would like to thank all of our employees for their efforts over the past year.
Their commitment and loyalty will be vital in continuing the success of the
Group during the exciting period ahead.
Outlook
The result for 2007 was excellent, and the outlook for 2008 is for a further
year of progress. While we are mindful of market uncertainties, for the reasons
stated above we believe that over the full year we can limit the impact of any
slowdown. This confidence in the future and the strength of the balance sheet
is reflected in the decision to recommend a significant increase in the
dividend. A number of organisational changes were made in 2007 to strengthen
the quality of the management team, and we will continue to invest both in sales
resource and in product development. Following the successful integration of
recent acquisitions, we are looking to acquire further complementary businesses
that are synergistic and earnings enhancing.
Paul Fullagar
Chairman
7 March 2008
Consolidated Income Statement
For the year ended 31 December 2007
Year Year
ended ended
31 December 2007 31 December 2006
�000 �000
Note
Revenue 2 21,230 19,858
Operating costs (18,535) (17,801)
Operating profit 2,695 2,057
Finance income 94 70
Finance expense (36) (82)
Profit before taxation 2,753 2,045
Income tax (expense) / credit 3 (38) 607
Profit for the year 2,715 2,652
Earnings per share 4
- basic 6.2p 6.2p
- diluted 6.1p 6.2p
Dividend per share 5 1.5p 1.0p
Consolidated Balance Sheet
At 31 December 2007
31 December 31 December
2007 2006
�000 �000
Assets
Non-current assets
Property, plant and equipment 425 407
Intangible assets
- goodwill 6,526 6,526
- intangible assets 2,738 3,073
- capitalised development costs 435 438
Deferred tax assets 1,222 1,423
Total non-current assets 11,346 11,867
Current assets
Trade and other receivables 5,512 5,564
Income tax receivable - 20
Cash and cash equivalents 5,124 4,121
Total current assets 10,636 9,705
Total assets 21,982 21,572
Equity
Issued share capital 889 888
Share premium 470 11
Acquisition reserve 5,687 5,849
Capital redemption reserve 240 240
Special reserve 1,869 6,871
Retained earnings 4,736 (2,842)
Total equity 13,891 11,017
Liabilities
Non-current liabilities
Loans and overdrafts - 275
Deferred tax liabilities 904 1,070
Total non-current liabilities 904 1,345
Current liabilities
Borrowings 275 1,074
Trade and other payables 6,563 7,735
Income tax payable 349 374
Provisions - 27
Total current liabilities 7,187 9,210
Total liabilities 8,091 10,555
Total equity and liabilities 21,982 21,572
Consolidated Statement of Cash Flows
For the year ended 31 December 2007
Year Year
ended ended
31 December 31 December
2007 2006
�000 �000
Profit for the year 2,715 2,652
Depreciation 282 317
Net rental expense charged against provisions - (353)
Amortisation of development spend capitalised 177 150
Amortisation of acquired intangible assets 335 279
Financing (income) / expense (58) 12
Income tax expense / (credit) 38 (607)
Cash generated from operations before
changes in working capital 3,489 2,450
Movement in trade and other receivables 59 (47)
Movement in trade and other payables (1,063) (46)
Movement in provisions (27) (141)
Cash generated from operations 2,458 2,216
Interest paid (36) (82)
Income tax received / (paid) 7 (8)
Net cash generated from operating activities 2,429 2,126
Cash flows from investing activities
Purchase of property, plant and equipment (301) (162)
Product development (174) (105)
Interest received 94 70
Disposal of business, net of cash disposed of - 805
Acquisition of subsidiary, net of cash acquired - (1,811)
Net cash flows used in investing activities (381) (1,203)
Cash flows from financing activities
Proceeds from the issue of share capital 13 12
Repayment of borrowings (275) (206)
Repayment of loan notes (799) -
Proceeds from sale of own shares 447 -
Dividends paid (431) -
Net cash flows used in financing activities (1,045) (194)
Net increase in cash and cash equivalents 1,003 729
Cash and cash equivalents at beginning of year 4,121 3,392
Cash and cash equivalents at end of year 5,124 4,121
Notes
1. Financial Objects plc previously prepared its financial statements in
accordance with UK generally accepted accounting principles. From 2007, the
Group is required to prepare its consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
European Union.
The financial information set out herein (which was approved by the Board on 7
March 2008) does not constitute the Company's statutory accounts for the years
ended 31 December 2007 and 2006 but is derived from the 2007 statutory accounts.
The statutory accounts for the year ended 31 December 2006, which were prepared
under UK GAAP, have been delivered to the Registrar of Companies.
The statutory accounts for the year ended 31 December 2007, prepared under
International Financial Reporting Standards adopted for use in the EU, will be
delivered following the Company's annual general meeting. The auditors have
reported on those accounts; their reports were unqualified, did not include
references to any matters to which the auditors drew attention by way of
emphasis without qualifying their reports and did not contain statements under
section 237(2) or (3) of the Companies Act 1985.
2. Segmental reporting
The Group operates from the United Kingdom, India, the USA, Singapore, Hong
Kong, Luxembourg and the Czech Republic. The Group's turnover and result
analysed by segment of business is shown in the table below. The profit shown
below is after allocation of indirect costs. Also shown is the turnover by
market destination and by type of business.
Revenue and result by segment (�'000) Segmental
Revenue result
Year to 31 Year to 31 Year to 31 Year to 31
December December December December
2007 2006 2007 2006
Banking 9,495 11,369 1,885 2,500
Wealth Management 3,393 2,378 308 38
Risk Management 4,334 1,942 989 71
Other software products 4,008 4,169 872 767
Total 21,230 19,858 4,054 3,376
Unallocated central costs (1,024) (1,040)
Profit before interest and amortisation of acquired
intangible assets 3,030 2,336
Amortisation of acquired intangible assets (Risk Management) (335) (279)
Net interest receivable / (payable) 58 (12)
Profit before tax 2,753 2,045
Revenue by destination (�000) Year to Year to
31 December 31 December
2007 2006
United Kingdom 13,234 13,331
Rest of Europe 5,492 4,729
North America 1,859 1,423
Rest of the World 645 375
Total revenue 21,230 19,858
Analysis of revenue by type (�000)
Other Software
Year to 31 December 2007 Wealth Management Risk Products
Banking Management Total
Licence 935 1,323 1,405 339 4,002
Services 3,563 1,413 2,249 1,642 8,867
Support 4,997 657 680 2,027 8,361
Total revenue 9,495 3,393 4,334 4,008 21,230
Year to 31 December 2006
Other Software
Wealth Management Risk Products
Banking Management Total
Licence 2,024 442 461 257 3,184
Services 4,354 1,223 976 1,862 8,415
Support 4,991 713 505 2,050 8,259
Total revenue 11,369 2,378 1,942 4,169 19,858
Notes (continued)
3. Income tax (expense) / credit
Year ended Year ended
31 December 2007 31 December 2006
�000 �000
Current tax - (7)
Deferred tax (38) 614
Income tax (expense) / credit (38) 607
4. Earnings per share
The basic profit per ordinary share has been calculated by dividing the profit
after taxation for the year of �2,715,000 (2006: �2,652,000) by the weighted
average number of shares in issue during the year of 44,038,058 (2006:
42,568,938).
The adjusted earnings per share figure excludes amortisation of acquired
intangible assets and tax to provide a more meaningful assessment of the ongoing
earnings of the Group. Adjusted earnings per share can be reconciled to the
basic earnings per share as follows:
2007 2006
�000 �000
Profit for the year 2,715 2,652
Amortisation of acquired intangible assets 335 279
Income tax 38 (607)
Adjusted earnings 3,088 2,324
Adjusted basic earnings per ordinary share 7.0p 5.5p
Adjusted diluted earnings per ordinary share 6.9p 5.4p
Weighted average number of shares
2007 2006
Number of Number of
shares shares
For basic earnings per share 44,038,058 42,568,938
Effect of share options 755,337 343,848
For diluted earnings per share 44,793,395 42,912,786
5. Dividends
The following dividends were paid by the Company
2007 2006
Pence per Pence per
�000 share �000 share
Previous year final 431 1.0 - -
The following dividends were proposed by the Company in respect of each year:
2007 2006
Pence per Pence per
�000 share �000 share
Final 667 1.5 444 1.0
The final dividend declared in respect of the year ended 31 December 2006 was
waived in respect of 1,336,119 shares held by the WMS Employee Benefit Trust.
The Board proposes the payment of a dividend of 1.5p per share, payable on 16
May 2008. This is subject to approval at the AGM on 8 May 2008, and in
accordance with IFRS, has not been included as a liability as at 31 December
2007. The dividend will be payable to shareholders on the register (record
date) on 18 April 2008 and the shares will go ex dividend on 16 April 2008.
6. Contingent liability
In early 2008, the Company received notification of the termination of one of
its contracts. The directors believe that this termination may lead to a claim
for damages, however no formal claim has been received. Any claim will be
vigorously resisted by the Company and its insurers, and therefore no provision
has been made in these accounts.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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