NeoNet's Interim Report, 1 January - 30 June 2001

NeoNet's Interim Report, 1 January - 30 June 2001 The Period in Summary · Transaction revenues grew by 22% to SEK 97.9 m, with 34% (37%) of revenues sourced from European clients outside Sweden and 16% (4%) from US clients. Revenue gains for the most recent 12 months were 43% on the previous 12 months. · Operating earnings before depreciation and net financial items amounted to SEK 18.5 m (23.7 m). · Earnings before tax reduced to SEK 7.2 m (11.5 m). · NeoNet's earnings per share were SEK 0.13. · The share of automatic order routing grew by 25 percentage points, to 65% (40%) of transaction revenues in the period. · Of total commission income in the period, 48% (33%) was sourced from marketplaces other than the Stockholm Stock Exchange. · The consolidated equity ratio was 67% (18%); liquid assets at the end of the quarter stood at SEK 214.6 m (151.6 m). · NeoNet established an electronic link-up to the London Stock Exchange in late January. In the second quarter, revenues from trading on the LSE comprised 7% of total. · NeoNet is now a member of the Euronext alliance (the Paris, Amsterdam and Brussels Exchanges); the scheduled trading start on Paris and Brussels is in September. · NeoNet reached collaboration agreements with parties including Orc Software; this deal enables Orc Software customers in 17 countries to trade equities on the markets NeoNet offers. · NeoNet reached an agreement regarding NeoNet clients' automatic order routing on Nasdaq stocks from the second quarter of 2002. · After the end of the Period the plan to connect to the Milan and virt-x stock exchanges has been announced. CEO's Statement "The first half of 2001 resulted in NeoNet continuing to advance its market positions. We have won market shares on all exchanges where we pursue trading, our progress on the Helsinki and Frankfurt exchanges was particularly robust. Our revenues from the London Stock Exchange, which we recently linked to our electronic execution network, were 7% of total in the second quarter. Our revenues rose 22% simultaneous with the majority of other sector players experiencing sharp revenue deterioration. However, as a consequence of the stagnating overall market, our revenue gains are not consistent with our expectations and plans, implying that half-year earnings have decreased from the previous year's level. Our dependence of the activities on the markets mean that market variations generates relatively sizeable quarterly revenue and earnings fluctuations. Our cost mass is overwhelmingly dependent on the number of exchanges where we pursue trading, and the rate of our market and product development. Obviously, we modify those expenses we can influence on an ongoing basis. Our client and revenue growth sustained on all of our geographical markets, and particularly the US, our US clients generated 16% of transaction revenues in the half-year, and 24% in the second quarter. Underlying demand for NeoNet's offering is firm, and accentuating. The prevailing stock market conditions have not improved so far in the third quarter implying that we estimate that the long-term financial objectives will not be met for the financial year or 2001. Despite the prevailing weak stock market, with our market successes under our belts and underlying client base growth, we will continue our product development according to plan, pursuing the objective of offering access to 80% of global stock market capitalization through our electronic execution network by 2003. NeoNet enjoys a secure financial position, as well as an extremely timely business concept and product. The potential for that player, or those players, able to offer global electronic trading for the institutional market is substantial, and until now, our progress demonstrates that we enjoy all the prospects of being in this group." THE GROUP Operations NeoNet's business concept is to offer its clients, institutional investors and broker-dealers efficient, secure and anonymous direct access to major stock markets. Operations are based on NeoNet's proprietary trading system. At present, NeoNet offers automatic order routing on the London, Frankfurt, Stockholm, Helsinki and Copenhagen Stock Exchanges, as well as manual trading on the above exchanges and the Oslo Stock Exchange. NeoNet has clients in ten European countries, plus the US. NeoNet gained membership of the Euronext Paris Exchange in January. Link- ups to NeoNet's execution network are proceeding according to plan, with the scheduled start of automatic order routing in September 2001. NeoNet's electronic execution network linked to the London Stock Exchange in January, and in effect, clients gained electronic access to the LSE in March. In March, NeoNet reached an agreement with US brokerage house and investment bank Jefferies & Co. Inc.; through NeoNet, Jefferies' 1,700 US institutional clients will gain electronic access to Europe's major stock exchanges. NeoNet also made a deal with BRUT ECN, one of the major ECN's (electronic communications networks) in the US in April. This agreement will offer NeoNet's clients access to direct order routing, principally in Nasdaq-quoted stocks. NeoNet has also reached an agreement with Orc Software, offering Orc Software clients the opportunity to utilize their software to trade equities through NeoNet. At the end of the period, the group employee headcount was 65 (53). Revenue and Earnings Consolidated transaction revenues expanded to SEK 97.9 m in the six- month period, against SEK 80.2 m in the corresponding period of the previous year, a 22% increase. In the second quarter isolated, revenues amounted to SEK 43.2 m, representing 17% growth. Second-quarter growth is entirely attributable to NeoNet's US expansion, while revenues sourced from European customers were largely unchanged on the second quarter 2000. Revenues for the most recent 12-month period were SEK 178.6 m, 43% growth on the previous 12- month period (124.6 m). Income by Customer's Geographical Location Jan. - Jan. - Jun. Jun. 2000 2001 Sweden 48. 50% 46.8 58% 8 Rest of 33. 34% 29.9 38% Europe 4 US 15. 16% 3.5 4% 7 Total 97. 100% 80.2 100% 9 In the second quarter, the average daily intermediated turnover was SEK 1,880 m, up 22% on SEK 1,543 m in the corresponding period of the previous year. Rolling 12-month daily trading values were 48% up on the corresponding period one year previously. The sector experienced sustained share price downturns through the second quarter 2001, coupled with contracting trading volumes, resulting in a significant reduction in turnover on Europe's stock exchanges. Compared to the second quarter of the previous year, total turnover on those stock exchanges most significant to NeoNet, Stockholm and Helsinki, fell by 7,9% and 1,4% respectively. Accordingly, the value of those equity transactions NeoNet intermediated in the second quarter (+22%), and revenues achieved (+17%), can only be considered positive. Quarterly Earnings SEK m Q2 Q3 Q4 Q1 Q2 ´00 ´00 ´00 ´01 ´01 Transaction 37.0 34.3 46.3 54.7 43.2 revenues Operating 8.1 5.3 10.9 17.5 1.0 earnings before net interest income and depreciatio n Earnings 1.1 -2.3 6.7 12.1 -4.9 before tax Quarterly operating earnings before net financial items and depreciation amounted to SEK 1.0 m (8.1 m); the six-month out-turn was SEK 18.5 m, equating to a 19% operating margin. The corporation's market expansion and product development initiatives have elicited increased operating expenses, compared to the previous year. Such initiatives include increased sales operations in the US and Europe, link-ups to new exchanges and ongoing systems development. NeoNet's primary strategy is to be able to offer automatic order routing on 80% of the market capitalization of the world's major stock exchanges by 2003. Consolidated first half-year earnings before tax were SEK 7.2 m, against SEK 11.5 m for the corresponding period of the previous year. The high gross margins of NeoNet's operations imply that generally, changes in market volumes and revenues also imply relatively sizeable fluctuations in quarterly earnings figures. Earnings per share were SEK 0.13 (0.27), the downturn due to lower earnings, as well as an increased number of shares (+40%), the consequence of new issues, primarily coincident with NeoNet's October 2000 initial public offering. Investments Investments were SEK 19.8 m (16.3 m) in the period, and basically relate to the enhancement of NeoNet's electronic execution network. Liquidity and Financial Position The closing balance of consolidated shareholders' equity was SEK 254.6 m (62.7 m); as of 30 June, liquid assets were SEK to 214.6 m, against 151.6 m at the corresponding point of 2000. Of the closing balance of liquid assets, SEK 124.0 m (116.0 m) comprised blocked funds-collateral for trading credits drawn down. At the end of the period, the consolidated equity ratio was 67% (18%). NeoNet's capital adequacy ratio was 132% at the end of the period (26%). Outlook NeoNet is exclusively active within the execution of equity transactions on major stock exchanges on behalf of institutional investors. Revenues are generated through commission, based on the value of the transactions executed. NeoNet does not pursue any proprietary trading, and accordingly, revenues and earnings in any given period are a function of client activity and quoted share prices. The implication is that the value of daily trading volumes, and thereby revenues and earnings, are subject to short-term variations. NeoNet expects to sustain revenue growth through robust expansion, by connecting to more stock exchanges for automatic order routing and by the addition of more clients in more countries. Moreover, NeoNet's share of client trading is expected to increase. NeoNet's link-up to the London Stock Exchange, and forthcoming connections to the Euronext alliance (the Paris, Amsterdam and Brussels Exchanges), NASDAQ and the Milan and virt-X exchanges and the New York Stock Exchange. In addition to this the ongoing accumulation of client base in the US and Europe, are examples of such market initiatives. NeoNet's over-arching financial objectives are to be able to post minimum annual sustainable revenue growth of 50%, and earnings before depreciation and net financial items of a minimum of 25% of transaction revenues. PARENT COMPANY The non-operational parent company pursues certain over-arching functions such as group management, finance, business development, IR and PR. For the period, the parent company posted earnings before tax of SEK - 3.6 m (-3.3 m). The new issue in March, resulting from the exercise of subscription rights, was registered in April, and resulted in the number of shares increasing to 41,574,980. The corporation gained SEK 2.7 m in restricted equity. In June, 53,986 subscription rights were exercised for the subscription of new NeoNet stock, implying a SEK 13.5 m increase in restricted equity. The new issue was registered on 12 July, and resulted in the number of shares increasing by 1,079,720 to a total of 42,654,700. Consolidated Income Statement 3 mth. 3 mth. 6 6 mth. 12 12 12 mth. mth. mth. mth. Apr. - Apr. - Jan. Jan. - Jul. - Jul. - Jan. - Jun. Jun. - Jun. Jun. Jun. Dec. Jun. SEK m 2001 2000 2001 2000 2001 2000 2000 Transaction revenues 43.2 37.0 97.9 80.2 178.6 124.6 160.9 Transaction expenses -5.2 -4.8 -11.7 -9.5 -21.9 -15.1 -19.7 Interest income 1.8 0.8 3.5 1.2 6.7 1.7 4.3 Interest expenses -2.2 -3.4 -3.8 -5.1 -10.4 -6.9 -11.7 Net earnings from -1.3 -0.3 0.3 -0.8 2.2 -1.0 1.1 financial transactions Other operating 1.6 2.0 4.0 2.6 6.9 3.4 5.5 revenue Total operating 37.9 31.3 90.2 68.6 162.1 106.7 140.4 revenue, net General administration expenses Other operating -23.5 -15.2 -43.0 -29.1 -78.2 -43.2 -64.1 expenses Personnel expenses -13.8 -10.6 -29.0 -19.7 -52.9 -35.6 -43.6 Depreciation -5.5 -4.4 -11.0 -8.3 -19.4 -13.8 -16.8 Total operating -42.8 -30.2 -83.0 -57.1 -150.5 -92.6 -124.5 expenses Operating earnings -4.9 1.1 7.2 11.5 11.6 14.1 15.9 Tax on earnings for 2.3 0.4 -1.9 -3.2 1.1 -4.6 -0.2 the period Net earnings -2.6 1.5 5.3 8.3 12.7 9.5 15.7 Earnings per share, neg 0.05 0.13 0.27 0.33 0.33 0.48 SEK Earnings per share neg 0.04 0.12 0.23 0.30 0.30 0.42 after full dilution, SEK No. of shares, 000 42,655 30,564 42,65 30,564 42,655 30,564 40,588 5 Average no. of shares, 41,777 30,564 41,18 38,054 28,628 32,786 000 7 30,564 Average no. of shares 45,055 36,054 45,10 36,076 42,704 31,703 37,689 after full dilution, 4 000 Consolidated Balance Sheet SEK m 30 30 31 Jun. Jun. Dec. '01 '00 '00 ASSETS Cash and lending 214. 151. 292. to credit 6 6 2 institutions Intangible fixed 47.2 34.5 42.0 assets Tangible fixed 16.3 11.7 12.7 assets Other assets 93.2 139. 187. 7 9 Prepaid expenses 8.0 3.7 6.3 and accrued income Total assets 379. 341. 541. 3 2 1 LIABILITIES, PROVISIONS AND SHAREHOLDERS' EQUITY Liabilities, 7.6 104. 130. credit 8 9 institutions Other 93.4 84.5 154. liabilities 1 Accrued expenses 19.1 14.1 16.3 and deferred income Subordinated 0.4 70.6 0.6 debt Provisions 4.2 4.5 4.1 Shareholders' equity Share capital 2.1 1.5 2.0 Restricted 228. 44.0 211. reserves 4 0 Earnings 18.8 8.9 6.4 carried forward Net earnings 5.3 8.3 15.7 Total 379. 341. 541. liabilities, 3 2 1 provisions and shareholders' equity Consolidated Cash Flow Statement Jan. Jan Jan - . - . - Jun. Jun Dec . . SEK m 2001 200 200 0 0 Cash flow from 5.4 12. 26. ongoing operations, 7 8 exc. settlement Cash flow from -77.4 17. 64. ongoing operations 8 5 attributable to settlement of equity transactions executed* Cash flow from -19.8 - - investment activities 16. 33. 3 3 Cash flow from 13.9 67. 162 financing activities 8 .7 Cash flow for the -77.9 82. 220 period 0 .7 Liquid assets, 292.2 70. 70. opening balance 4 4 Liquid assets, 0.3 - 1.1 translation 0.8 differences Liquid assets, 214.6 151 292 closing balance .6 .2 *Cash flow attributable to the settlement of executed securities transactions varies significantly from day to day, depending on trading volumes and time variations in processing at the counterparty level. The typical settlement period is two to three days after the trading date. Change in shareholders' equity SEK m Jan. Jan. Jan. - - - Jun. Jun. Dec. 2001 2000 2000 Opening balance, 235. 57.0 57.0 shareholders' 1 equity Registration of 0.0 new issue, 1999 New issue 2000 139. 5 New issue coincident with utilization of 16.0 24.6 warrants Warrants premium 0.5 0.5 Non-cash issue 1.2 Repurchase of -3.3 -0.9 warrants Translation 1.7 0.0 0.6 differences Decrease in -0.2 0.0 restricted equity Dividend -3.1 -3,1 Net earnings 5.3 8.3 15.7 Closing balance, 254. 62.7 235. shareholders' 6 1 equity Consolidated Key Figures Jan. Jan. Jan. - - - Jun. Jun. Dec. SEK m 2001 2000 2000 Earnings in summary Operating 18.5 23.7 40.1 earnings before net interest income and depreciation Operating 7.5 15.4 23.3 earnings before net interest income Margins Operating 19% 30% 25% margin Net margin 8% 19% 15% Profit margin 5% 10% 10% Yield Average capital 391. 234.6 269.3 employed 8 Return on 2% 13% 16% equity Return on 3% 7% 10% capital employed Operational Key Figures Ave. no. of 124 125 250 trading days on connected markets Ave. daily 1,99 1,532 1,640 trading volume 9 Financial Position Equity ratio 67% 18% 43% Interest 290% 326% 236% cover Debt-equity 0.3 2.9 1.2 ratio Capital 132% 26% 124% adequacy Share data No. of 42,65 30,56 40,58 shares, 000 5 4 8 Ave. no of 41,1 30,56 32,78 shares, 000 87 4 6 Earnings per 0.13 0.27 0.48 share, SEK Shareholders' 5.97 2.06 5.79 equity per share, SEK Number of 45,05 37,09 45,15 shares after 5 5 5 full dilution, 000 Average number 45,1 36,07 37,68 of shares after 04 6 9 full dilution, 000 Earnings per 0.1 0.23 0.42 share after full 2 dilution Shareholders' 6.08 3.32 6.00 equity per share after full dilution, SEK Employee Data Number of 65 53 62 employees at the end of the period Average 64 50 54 number of employees Definitions Operating margin Operating earnings before net interest income and depreciation as a percentage of transaction revenues. Net margin Operating earnings before net interest income and tax as a percentage of transaction revenues. Profit margin Profit after tax as a percentage of transaction revenues. Average capital employed Average total assets less average non-interest bearing liabilities including deferred tax liabilities. Return on equity Net earnings as a percentage of average shareholders' equity for the period. Return on capital employed Earnings net of financial items plus financial expenses as a percentage of average capital employed. Equity ratio Closing balance of shareholders' equity as a percentage of the closing balance of total assets. Interest cover Operating earnings plus financial expenses divided by financial expenses. Debt/equity ratio Closing balance of interest-bearing liabilities and provisions in relation to the closing balance of shareholders' equity. Capital adequacy ratio Total capital base divided by the total risk-weighted credit and market risk amounts (Swedish Financial Supervisory Authority stipulation FFFS 2000:6). Earnings per share Earnings after tax in relation to the average number of shares for the period. Shareholders' equity per share The closing balance of shareholders' equity in relation to the average number of shares. Accounting Principles The consolidated accounts have been prepared in accordance with Swedish legislation relating to statutory accounting by credit institutions and securities corporations (ÅRKL) and the Swedish Financial Supervisory Authority's stipulation FFFS 2000:18 applicable because of the parent company's status as a financial holding company. This Interim Report has been produced in accordance with the Swedish Financial Accounting Standards Council's recommendation RR20 regarding interim reports The transference rules of the new recommendations have been utilized, implying the correction of some comparative figures. This revision of accounting principles has not implied any material effect on the corporation's earnings and position. Audit Review The corporation's auditors have not reviewed this Quarterly Report. Stockholm, Sweden, 24 August 2001 Torvald Bohlin Chief Executive Officer NeoNet AB (publ) Further information available from: Torvald Bohlin, Chief Executive Officer Tel: +46 (0)8 454 1539 torvald.bohlin@neonet.se Internet www.neonet.se Forthcoming Reports Interim Report Jan. - Sep. 2001, 25 October 2001 Financial Statement 2001, 31 January 2002 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/24/20010823BIT01110/bit0001.doc http://www.waymaker.net/bitonline/2001/08/24/20010823BIT01110/bit0001.pdf