As a result, the profit from operations (“EBITA”) reached €409.0m, i.e. an increase of 28.4% compared to the previous record level in 2005 and the EBITA margin stood at 37.1%, a substantial improvement compared to 33.1% in 2005 on a restated basis(1). Excluding above advisory costs, EBITA and EBITA margin would have respectively amounted to €456.6m and 41.4%.
The net financing income remained stable year on year at €11.5m despite €445m paid in dividend and repayment of capital in the middle of last year. As reported earlier in 2006, a capital gain of €15.5m was booked in relation to the sale of CIK to Euroclear as of 1 January 2006. Finally, the income from associates was multiplied by 2.9 between 2005 and 2006, driven by the performance of LCH.Clearnet (€36.9m) and AEMS (€15.4m).
During the period, the profit before tax amounted to €489.6m, up 37.0% year-on-year and the net profit jumped by 50.8% (compared to its restated level in 2005) from €240m to €361.8m. On a per share basis, the diluted earnings stood at €3.23, +49.4% compared to diluted EPS at the end of 2005.
Operating expenses
Staff costs were up 4.2% from €264.4m to €275.4m year on year. The increase is mainly due to the provision for bonuses, which has increased in relation to the higher profitability generated during the year and a one-off cost paid during the first quarter for the transfer of Necigef staff to Euroclear. Full Time Equivalents of Euronext excluding GLTrade totalled 1,169 on 31 December 2006, down 50 compared to the same date in 2005, while the number of GL Trade employees in FTE increased from 1,083 to 1,155 during the same period of time.
IT costs increased from €139.8m to €166.2m reflecting the full year effect of the deconsolidation of Liffe Market Solutions (LMS) in July 2005. Prior to the transfer of LMS to AEMS, most of the IT costs were booked in staff costs and depreciation.
Office, Telecom and Consultancy amounted to €130.1m in 2006 compared to €98.8m in 2005. These costs included the advisory costs paid in relation to the corporate deals, which represented a total amount of €47.6m in 2006, and €17.3m in 2005. Restated from these advisory costs, OTC costs would have increased by only 1.2% on a yearly basis.
Accommodation costs were reduced by 11.5% from 2005 to 2006 at €44.4m as a result of the sale of CIK, the move to a new building in Lisbon and the transfer of LMS to AEMS.
Breakdown by Business Units
Cash trading: Revenues from cash trading reached an all-time record level of €286.9m, up 33.0% compared to 2005 due to strong market conditions (219.5 million trades, up 35.1% compared to 2005). At the same time the expenses of the business unit decreased by 5.9% achieving an EBITA of €171.3m (+84.6% compared to 2005) and an EBITA margin of 57.5% (40.8% in 2005).
Listing fees: 2006 has been the busiest year since the creation of Euronext both in terms of number (142 new listings) and value (€21.4bn of capital raised) of IPOs. The revenues for the full year 2006 amounted to €55.6m, i.e. €7.5m below 2005. Revenues in 2005 were exceptional due to 2 of the world’s biggest IPOs: EDF and GDF.
Expenses were up by 16.9% year on year at €25.3m due to the roll out of our international listing initiative. The EBITA stood at €30.4m with an EBITA margin of 54.5%.
Derivatives trading: Favourable market conditions on derivatives markets enabled Euronext.liffe to deliver a strong performance and to set a new trading record. The overall increase in volume reached 21% with 730.3 million of contracts traded during the year. The overall revenues of the business unit out-performed last year by 18.0% reaching €391.6m. Expenses continued to decrease from €237.5m in 2005 to €221.4m in 2006, i.e. -6.7%. The business unit has delivered a new record level of EBITA of €189.4m, a gain of 45.0% compared to 2005, and an EBITA margin of 46.1% (35.5% in 2005).
MTS fixed income: MTS is 51% proportionally consolidated. In 2005, only one month of MTS revenues and expenses were accounted for. On a comparable basis and for information purposes only, the MTS fixed income revenues increased by 2.4% from 2005 to 2006. With an EBITA of €7.7m, MTS Fixed Income has generated an EBITA margin of 25.6% in 2006.
Information services: The business unit performed well in 2006 with total revenues of €112.0m, representing an increase of 19.7% compared to 2005. Expenses grew at a lower rate than revenues (+9.5% at €38.6m) improving significantly the EBITA from €32.3m to 43.4m (+34.5%) and the EBITA margin at 53.0% in 2006 versus 47.8% in 2005.
b]Settlement and custody:[/b] The segment solely consists of Interbolsa, the Portuguese central securities depository, whose yearly revenues remained unchanged at €14.5m despite a substantial fee decrease at the beginning of the year. Interbolsa generated an EBITA of €9.7m corresponding to an EBITA margin of 66.0%.
Sales of software: In 2006, this revenue stream consists only of GL Trade turnover whereas in 2005 it also included Liffe Market Solutions (LMS). GL Trade revenues for the full year went up from €179.0m in 2005 to €184.6m in 2006, i.e. a 3% growth. GL Trade’s expenses are impacted by the rise in staff costs as a result of new acquisitions, and other operating expenses due to an increase in legal and tax expenses. Despite the transfer of LMS, the segment improved its EBITA level by €3.8m at €31.1m and its EBITA margin from 15.2% to 16.8% in 2006.
Outlook
Euronext announced on 14th of December 2006 the major upgrade of its trading platform based on new Linux-IBM technology and published on 1st February 2007 its range of services and innovations in response to MiFid implementation, delivering best execution as required by the directive.
By constantly improving its technology and its services, Euronext continues to offer its clients a wide range of functionalities combined with unrivalled speed of execution.
Based on these initiatives, a strong start to the year 2007, its confidence in maintaining efficient control of its costs and provided there are no unforeseen circumstances, Euronext expects on a standalone basis, a further increase in its revenues and in its operating profit for 2007.
