8th Sep 2010 16:16
8 September 2010
Lombard Risk Management plc
("Lombard Risk" or the "Company")
Final Results for the Year ended 31 March 2010 and notice of General Meeting
Lombard Risk Management plc (AIM: LRM), the global provider of specialised software solutions that improve the management and reporting of collateralised trading, liquidity and regulatory compliance, announces Final Results for the year ended 31 March 2010.
Highlights
Financial results for the year ended 31 March 2010 prepared under International Financial Reporting Standards ("IFRS") as adopted by the European Union.
·; Revenue 3% up on same period last year at £8.95m (2009: £8.69m)
·; Profitability achieved by Risk and Trading division, with both COLLINE® Collateral Management software and Oberon® achieving profitability
·; More contract wins for COLLINE® and acceptance of the software by a Tier 1 Continental European bank
·; Multiple contract wins from UK regulatory business driven by Liquidity Standards regulation announced by FSA in October 2009 with most of the revenue from these to be earned in year ending 31 March 2011
·; Loss before interest and tax of £1.3 m before one off charge relating to prior year bad debts (2009: £1.1m)
·; Fund-raising completed in October 2009 resulting in strengthened Balance Sheet. Cash at year end £0.70m and no debt of any kind (2009: £0.15m cash and director loans of £1.33m)
Prospects
·; Strong start to trading in new financial year with over 30% like for like revenue growth, and profitability achieved in both the company's divisions in the first 4 months of year ending 31 March 2011
·; Risk & Trading Division - Ongoing demand for COLLINE®: COLLINE® collateral management software has gone live at a high profile Tier 1 Continental European bank, proving the product's ability to deal with high volume international banks as well as medium sized and smaller clients. In addition, demand continues by banks and asset managers for collateral management products
·; Regulatory Compliance Division: Revenue from Liquidity Standards regulations that come into effect by November 2010 proving to be a very positive for the Company's Regulatory Compliance division. The Company can expect to continue to benefit from further changes away from "light touch" regulation.
·; Expected revenues from other new products in 2011
Contacts:
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Lombard Risk Management plc
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Tel: 020 7593 6700www.lombardrisk.com |
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Philip Crawford, Chairman |
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John Wisbey, CEO |
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Allenby Capital Limited |
Tel: 020 3328 5656 |
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Brian Stockbridge / Alex Price |
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Walbrook PR Ltd |
Tel: 020 7933 8780 |
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Paul McManus |
Mob: 07980 541 893 or [email protected] |
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Bob Huxford |
Mob: 07747 635 908 or [email protected] |
The notice of General Meeting was posted to shareholders on 7 September 2010 and, together with the Annual Report and Financial Statements for the year ending 31 March 2010, will be available from today from the Company's website www.lombardrisk.com in accordance with AIM Rule 20. The Annual Report and Financial Statements will be sent to shareholders over the next few days and further announcements will be made in this regard.
The Annual Report and Financial Statements and Notice of General Meeting will also be made available for inspection at the Company's registered office during normal business hours on any weekday. The registered office of Lombard Risk Management plc is at 7th Floor Ludgate House, 245 Blackfriars Road, London SE1 9UF.
The Company's General Meeting will be held at 7th Floor Ludgate House, 245 Blackfriars Road, London SE1 9UF on 30 September 2010 at 11.00.
CHAIRMAN'S REPORT
I joined Lombard Risk as Chairman on 1 May 2010 with the result that my own direct experience of the Company covers only the current financial year. The year to date has been a period in which the company has been able to reap the benefit of the efforts and investment made in the previous financial year. This has resulted in revenue growth of more than 30% in the first four months of the current financial year, and a return to profitability during that time.
The board and executive team are focused on continued operational improvements and efficiency to accompany the revenue growth being achieved. Costs have been cut, but have also been accompanied by investment in those areas which we believe will drive future growth.
I will report in greater detail at the time of the interim financial statements, but my first impressions are of a company with considerable potential. I am grateful to the board, investors and advisors alike for making me feel welcome at Lombard Risk.
Philip Crawford
Chairman
CHIEF EXECUTIVE'S REPORT
Summary
The year saw the Company making steady progress. While we incurred a loss for the year ended 31 March 2010, the board believes that the work done in the year has laid the foundation for growth in future periods. This has been seen in the first few months of the year ended 31 March 2011, during which we have registered year on year growth of over 30% per annum. In the collateral management software business we continued to win contracts and grow organically, while implementation at the major Tier 1 Continental European bank announced in April 2009 progressed through the year and resulted in acceptance in April 2010. In the regulatory compliance business a lot of work was performed ahead of the major new UK Financial Services Authority ("FSA") regulations on Liquidity Standards, which have provided a major revenue opportunity; however since these regulations were finalized later than expected, in October 2009, and software was not ready until April 2010, the revenue recognition in the period ending 31 March 2010 was negligible. During the year we raised equity funds that eliminated all our borrowings and strengthened our Balance Sheet. In the post-financial crisis environment in which customers and investors are more risk averse than usual, these were all events that took us in the right direction.
Revenues for the year increased by 3% to £8.95m (2009: £8.69m). Our loss after tax was £1.58m (2009: £1.16m) but this included £0.11m of interest and following a thorough review of revenue, one time provision in respect of bad debts from previous periods of £0.18m.
We invested heavily in resource for Colline during the year, although much of that investment was to support a major contract and other large contracts. The Trading and Risk business traded profitably, so that more than 100% of the loss was in the Regulatory Compliance business which represented 47% of revenues. The weakness in the regulatory business in the first half was expected as few final decisions were being taken by UK regulatory customers before the FSA had finalized its policy on liquidity, and the weakness in the second half was primarily an issue of revenue recognition owing to the extended regulatory deadlines. An appreciable number of contracts were won during the second half, but the revenue will be recognised in the year ended 31 March 2011.
In the post-crisis international financial environment, there is a move away from a light touch regulatory regime in the UK and in many other countries, and there is little if any sign of this changing following the change of UK Government. In the UK this began with a complete reform of Liquidity Reporting and the board believes that this move away from light touch regulation offers considerable opportunity to the Company in the coming years. As well as the Liquidity Standards announced by the FSA, new FSA policy statements on Stress Testing have been published and FSA consultation papers have been published about Capital Standards which are likely to lead to more regulatory change in 2011 and 2012. There are considerable regulatory opportunities in all the countries in which the Company operates, with world regulators seemingly close to an agreement on a "Basel 3" capital regime.
The board considers that the outlook for our COLLINE® collateral management software remains promising with strong new business demand expected to continue, including switching away from competitor systems to COLLINE®, together with likely revenue growth from existing customers. The Company now prove the scalability and resilience of the product (i.e. its ability to cope with large volumes and to withstand the loss of individual servers without ceasing to function) through its deployment in a leading Tier 1 Continental European bank in an international environment.
Given that most of our revenues come from banks and financial services companies, the Board considers that the Company's products are well placed with an emphasis on collateral management, liquidity and regulatory compliance. We are the global number 2 in both collateral management software and in bank regulatory reporting software.
Financial
Revenues for the year increased by 3% to £8.95m (2009: £8.69m). Our loss after tax was £1.58m (2009: £1.16m) but this included £0.11m of interest and a one-time provision in respect of bad debts from previous periods of £0.18m following a thorough review. Stripping out these items would have shown a reduced underlying loss of £1.3m and an adjusted cost base of £10.2m for the year. Net cash was £ 0.7m at 31 March 2010 (2009: £0.15m less £1.33m of director loans).
The financial highlight of the period was the raising of £2.83m of equity, of which £1.75m was from institutions and investors on AIM, and the balance of £1.08m was in either new money or loan conversions from directors and former directors. After deduction of fees and expenses of around £0.2m, this allowed the Company to repay all its director loans of £1.63m and its overdraft, reduce its creditors to a lower number of creditor days, as well as retain a reserve for working capital.
Recurrent revenue has historically been a healthy proportion of revenues at the Company. Recurrent annual revenues for the Group were at around £4.4m p.a at the year end (2009: 4.3m). In addition, the revenue profile remains fairly well spread. This recurrent number has continued to grow during the current financial period and as a result of contracts already won the board expects this to grow throughout the remainder of the current period.
Trading and Risk Software Products
As anticipated in former statements, the financial crisis has been beneficial for our COLLINE® collateral management software product. This product now handles substantially all of the key requirements of a collateral business including margining, repo and securities lending, trade reconciliation, inventory management and reporting including regulatory reporting (e.g. for Fed-15 reports and outputs to regulatory liquidity reporting). During the period we completed projects with Loomis, Sayles & Co, Pacific Life, ABN-AMRO and began a project with BNP Paribas Securities Services. We also made good progress with implementation of a major contract with a Tier 1 Continental European bank concluded at the end of the financial year ended 31 March 2009, and have demonstrated COLLINE®'s scalability, resilience and performance in that bank's own environment using active-active clustering in multiple data centres, user locations in three continents, and well over 150 users. This means that the board has every confidence that our solution is scalable from the smallest collateral user to the largest global bank.
OberonÒ, our most established product, continues to move forward with functional and performance enhancements and remains profitable.
During the year we launched our LISA® product, and we have now signed up several new customers for it. LISA will be a risk product which is complementary to our regulatory products, starting with Liquidity Risk, and using the most modern technology. Lombard Risk has always been strong on risk management, and the board considers that the convergence of risk and regulation plays to our strengths.
Regulatory and Compliance Software Products
Lombard Risk is the market leader for UK Bank regulatory reporting with approximately 130 of the 350 banks in the UK, and approximately 15 investment firms in the UK using the STB-Reporter product for regulatory reporting to the FSA.
This depth of customer base gives the Company opportunities to sell additional functionality to existing customers. When the announcement of new regulations is imminent there tends to be a lull in activity before those regulations are actually finalized and this was the case during the year with the FSA's final new regulations on Liquidity Reporting and Liquidity Stress Testing not being published until October 2009. Consequently there was very little revenue in the period under review from this source except from analysis work on the impact of the consultation papers. The Company has now won 30 contracts related to this initiative for Liquidity Reporting or Liquidity Stress Testing, and is very busy rolling out the solution to these customers in the current financial year. The FSA has also ended up changed its originally stated plans to subject all foreign bank branches to UK Liquidity Reporting and many such firms were able to negotiate modifications/waivers to these rules.
The Liquidity Reporting and Stress Testing regulatory regime which comes into effect in the UK in 2010 seems likely to be followed by new Capital Standards and Stress Testing and there is a timetable for regulatory change including a new "Basel 3" accord. This opportunity is by no means confined to the UK, although the board believes that the weight of our customer base gives us more ability to leverage the opportunity in the UK than elsewhere.
The board consider that the Company's ability to offer global solutions has been greatly enhanced through our now having regulatory offerings available or under production for several EMEA and Asian countries as well as the United States. Our Singapore office made a number of worthwhile product wins including business in Singapore won away from our main competitor, and we obtained our first two customers for Japanese reporting.
Personnel and Premises
During the period under review we continued to make new hires appropriate to the expected growth of parts of the business, but we also benefited from cost actions taken before the financial year end. We continue to take actions designed to establish profitability in all parts of the business, and to re-allocate resources to those parts of the business where we see the best prospects. The board intend that costs will continue to be contained overall and that they are reduced as a percentage of any revenue rises as proportionately more work is carried out in Shanghai and we achieve greater efficiency gains. We now have more than half of our group headcount in Shanghai.
I agreed to split my combined Chairman & CEO role at the time of the institutional fund-raising, and the board and I was delighted to welcome Philip Crawford as our new Non-Executive Chairman from 1st May 2010. At the same time Mike Shinya joined as a Non-Executive Director. Both Philip and Mike have very heavyweight experience as senior executives in the IT industry at large companies such as EDS and Oracle, and their experience will help take the Company forward to the next level.
While so many people worked hard during the year, special thanks are due to the teams in London and Shanghai led by Nick Davies and Helen Bramley who did so much to ensure the success of major Colline projects. Many late nights were worked by many to ensure that deadlines were met.
At board level special thanks are due to Ian Peacock, our Non-Executive Deputy Chairman, who retires at the AGM. Ian has been with the Company for over 10 years in various capacities, and I have always valued his wise counsel and incisive questioning over that time. Thanks are also due to Chris Langridge who joined us in April as COO and Finance Director to help us with some of our strategic initiatives including cost cutting. Chris will not be standing for re-election at the AGM, and a permanent replacement will be announced shortly.
Prospects
The Group has seen more than 30% year on year revenue growth in the first 4 months of the current financial year, and taking into account recurrent revenue and the contracted revenues which the board believes should be recognisable by 31st March 2011, this is a promising start to the new financial year. We continue to see a healthy sales pipeline for our COLLINE® collateral management software following the substantial Tier 1 Continental European bank going live. In addition, the board believes that some of the new regulatory driven industry initiatives on central counterparty and messaging should help us win additional business. In addition the Board sees no end to the increase in bank and securities firm regulation, and is optimistic that this will have a positive effect on the Group's regulatory compliance business, albeit that this benefit will continue to come in waves with peaks and troughs in demand around regulatory deadlines. The climate for the next few years is for mandatory additional spend on regulation. The key issue for us is what share of this spend the Group can achieve and the scale of investment required to make this a major international profit opportunity for us.
In this changing environment the Board continues to believe that, as changes in legislation are adopted and credit risk and liquidity risk management are ever more tightly controlled, risk and regulatory software will be in demand. Lombard Risk, as the global number 2 in both collateral management software and bank regulatory reporting software, should be well positioned to take advantage of this.
I would like to thank all my colleagues, as well as our advisors Allenby Capital, Grant Thornton, Memery Crystal and others, for their hard work and support, and further to thank our customers and investors alike for their support of us.
John Wisbey
Chief Executive
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2010
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|
|
|
Year ended |
Year ended |
|
|
|
|
31 March 2010 |
31 March 2009 |
|
|
|
Note |
£ |
£ |
|
Continuing operations |
|
|
|
|
|
Revenue |
|
[2] |
8,949,459 |
8,694,450 |
|
Cost of sales |
|
|
(174,139) |
(43,936) |
|
Gross profit |
|
|
8,775,320 |
8,650,514 |
|
Administrative expenses |
|
|
(10,256,513) |
(9,769,510) |
|
(Loss) from operations |
|
[4] |
(1,481,193) |
(1,118,996) |
|
Finance expense |
|
[5] |
(108,915) |
(139,736) |
|
Finance income |
|
[6] |
1,026 |
5,000 |
|
(Loss) before taxation |
|
|
(1,589,082) |
(1,253,732) |
|
Taxation |
|
[7] |
4,731 |
96,074 |
|
(Loss) for the year from continuing operations |
|
|
(1,584,351) |
(1,157,658) |
|
Profit for the year from discontinued activities |
|
[8] |
- |
58,721 |
|
(Loss) for the year transferred from reserves |
|
|
(1,584,351) |
(1,098,937) |
|
|
||||
|
Exchange differences on translating foreign operations |
|
|
(54,536) |
21,072 |
|
Total comprehensive income for the year |
|
|
(1,638,887) |
(1,077,865) |
|
(Loss) per share |
|
|
|
|
|
Basic (pence) |
|
[9] |
(0.95) |
(0.81) |
|
Diluted (pence) |
|
[9] |
(0.95) |
(0.81) |
|
(Loss) per share on continuing activities |
|
|
|
|
|
Basic (pence) |
|
[9] |
(0.95) |
(0.85) |
|
Diluted (pence) |
|
[9] |
(0.95) |
(0.85) |
|
Earnings per share on discontinued activities |
|
|
|
|
|
Basic (pence) |
|
[9] |
- |
0.04 |
|
Diluted (pence) |
|
[9] |
- |
0.04 |
Consolidated Balance Sheet
As at 31 March 2010
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As at |
As at |
|
|
|
31 March 2010 |
31 March 2009 |
|
|
Note |
£ |
£ |
|
Non‑current assets |
|
|
|
|
Property, plant and equipment |
[10] |
151,753 |
239,798 |
|
Goodwill |
[11] |
3,632,680 |
3,632,680 |
|
Other intangible assets |
[11] |
10,208 |
11,441 |
|
|
|
3,794,641 |
3,883,919 |
|
Current assets |
|
|
|
|
Trade and other receivables |
[12] |
1,579,833 |
2,842,226 |
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Cash and cash equivalents |
|
702,194 |
150,999 |
|
|
|
2,282,027 |
2,993,225 |
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Total assets |
|
6,076,668 |
6,877,144 |
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|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
[13] |
(1,953,437) |
(3,847,208) |
|
Provisions |
[15] |
- |
(137,664) |
|
Deferred income |
|
(2,794,698) |
(2,580,502) |
|
|
|
(4,748,135) |
(6,565,374) |
|
Total liabilities |
|
(4,748,135) |
(6,565,374) |
|
Net assets |
|
1,328,533 |
311,770 |
|
Equity |
|
|
|
|
Share capital |
[16] |
1,464,465 |
1,110,715 |
|
Share premium account |
|
4,795,033 |
2,512,904 |
|
Foreign exchange reserves |
|
(63,672) |
(9,136) |
|
Other reserves |
|
1,668,923 |
1,649,152 |
|
Profit and loss account |
|
(6,536,216) |
(4,951,865) |
|
Total equity |
|
1,328,533 |
311,770 |
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 March 2010
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|
|
Share |
Foreign |
|
Profit and |
|
||
|
|
Share |
premium |
exchange |
Other |
loss |
Total |
||
|
|
capital |
account |
reserves |
reserves |
account |
equity |
||
|
|
£ |
£ |
£ |
£ |
£ |
£ |
||
|
Balance at 1 April 2009 |
1,110,715 |
2,512,904 |
(9,136) |
1,649,152 |
(4,951,865) |
311,770 |
||
|
Share-based payment charge |
- |
- |
- |
19,771 |
- |
19,771 |
||
|
Issue of share capital |
353,750 |
2,282,129 |
- |
- |
- |
2,635,879 |
||
|
Transactions with owners |
353,750 |
2,282,129 |
- |
19,771 |
- |
2,655,650 |
||
|
Loss for the year |
- |
- |
- |
- |
(1,584,351) |
(1,584,351) |
||
|
Other comprehensive income |
|
|
|
|
|
|
||
|
Exchange differences on translating foreign operations |
- |
- |
(54,536) |
- |
- |
(54,536) |
||
|
Total comprehensive income for the year |
- |
- |
(54,536) |
- |
(1,584,351) |
(1,638,887) |
||
|
Balance at 31 March 2010 |
1,464,465 |
4,795,033 |
(63,672) |
1,668,923 |
(6,536,216) |
1,328,533 |
||
|
|
|
Share |
Foreign |
|
Profit and |
|
||
|
|
Share |
premium |
exchange |
Other |
loss |
Total |
||
|
|
capital |
account |
reserves |
reserves |
account |
equity |
||
|
|
£ |
£ |
£ |
£ |
£ |
£ |
||
|
Balance at 1 April 2008 |
1,108,510 |
2,490,110 |
(30,208) |
1,637,906 |
(3,852,928) |
1,353,390 |
||
|
Share-based payment charge |
- |
- |
- |
11,246 |
- |
11,246 |
||
|
Issue of share capital |
2,205 |
22,794 |
- |
- |
- |
24,999 |
||
|
Transactions with owners |
2,205 |
22,794 |
- |
11,246 |
- |
36,245 |
||
|
Loss for the year |
- |
- |
- |
- |
(1,098,937) |
(1,098,937) |
||
|
Other comprehensive income |
|
|
|
|
|
|
||
|
Exchange differences on translating foreign operations |
- |
- |
21,072 |
- |
- |
21,072 |
||
|
Total comprehensive income for the year |
- |
- |
21,072 |
- |
(1,098,937) |
(1,077,865) |
||
|
Balance at 31 March 2009 |
1,110,715 |
2,512,904 |
(9,136) |
1,649,152 |
(4,951,865) |
311,770 |
||
Other reserves relate to negative goodwill arising on the acquisition of a subsidiary undertaking prior to 1 April 1997, share-based payment and the merger reserve.
Consolidated Cash Flow Statement
For the year ended 31 March 2010
|
|
Year ended |
Year ended |
|
|
31 March 2010 |
31 March 2009 |
|
|
£ |
£ |
|
Cash flows from operating activities |
|
|
|
Loss for the period excluding discontinued operations |
(1,584,351) |
(1,157,658) |
|
Tax credit |
(4,731) |
(96,074) |
|
Finance income |
(1,026) |
(5,000) |
|
Finance expense |
108,915 |
139,736 |
|
Operating loss |
(1,481,193) |
(1,118,996) |
|
Profit on discontinued activities (note 8) |
- |
(58,721) |
|
|
|
|
|
Adjustments for: |
|
|
|
Depreciation |
137,891 |
157,032 |
|
Amortization |
10,960 |
13,451 |
|
Share-based payment charge |
19,771 |
11,246 |
|
Provision for onerous lease |
- |
(9,130) |
|
Decrease/(increase) in trade and other receivables |
1,262,393 |
(521,554) |
|
(Decrease)/increase in trade and other payables |
(716,340) |
683,059 |
|
Increase/(decrease) in deferred income |
214,196 |
(109,693) |
|
Cash used in operations |
(552,322) |
(953,306) |
|
Tax credit received |
4,731 |
96,074 |
|
Net cash outflow from operating activities |
(547,591) |
(857,232) |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchase of property, plant and equipment |
(88,851) |
(235,151) |
|
Purchase of intangible fixed assets |
(10,353) |
(20,496) |
|
Proceeds from sale of IVRS (Note 8) |
- |
58,721 |
|
Net cash used in investing activities |
(99,204) |
(196,926) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
Loans from Directors |
300,000 |
820,000 |
|
Repayment of Directors' loans |
(600,000) |
- |
|
Shares issued, net of issue costs |
1,605,879 |
24,999 |
|
Interest received |
1,026 |
5,000 |
|
Interest paid |
(108,915) |
(139,736) |
|
Net cash generated by financing activities |
1,197,990 |
710,263 |
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
551,195 |
(343,895) |
|
Cash and cash equivalents at beginning of period |
150,999 |
494,894 |
|
Cash and cash equivalents at end of period |
702,194 |
150,999 |
Notes to the Consolidated Financial Statements
For the year ended 31 March 2010
1. ACCOUNTING POLICIES
(a) Basis of preparation
These consolidated financial statements are for the year ended 31 March 2010. They have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretation Committee ("IFRIC") interpretations as at 31 March 2010, as adopted by the European Union. They have been prepared under the historical cost convention.
The preparation of financial statements under IFRS requires the Board to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of balance sheet items at the period end and the reported amount of revenue and expense during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements that are not readily apparent from other sources. However, the actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on‑going basis.
The financial information set out in this preliminary announcement does not constitute statutory accounts for the years ended 31 March 2010 or 2009. The financial information for the year ended 31 March 2009 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 March 2010 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies.
New Standards, Amendments and Interpretations
At the date of authorization of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective and have not been adopted early by the Group.
Management anticipates that all of the pronouncements will be adopted by the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.
·; IFRS 9 Financial Instruments (effective 1 January 2013)
IFRS 9 addresses the classification and measurement of financial assets and will replace IAS 39. The Standard is mandatory for accounting periods commencing on or after 1 January 2013, subject to adoption by the European Union.
·; Annual Improvements 2009 (effective 1 July 2009 and later)
The IASB has issued Improvements for International Financial Reporting Standards 2009. Most of these amendments become effective in annual periods beginning on or after 1 July 2009 or 1 January 2010. The Group has made a preliminary assessment of the proposed amendments and does not believe that the effect on the Group's financial statements will be significant.
(b) Changes in accounting policies
The Group has adopted the following new Standards, Interpretations, Revisions and Amendments to IFRS issued by the International Accounting Standards Board and adopted by the European Union, which are relevant and effective for the Group's financial statements for the annual period being 1 April 2009:
·; IAS 1 (revised) Presentation of financial statements
·; IFRS 8 Operating segments
IAS 1 (revised) Presentation of financial statements requires presentation of a comparative balance sheet at the beginning of the first comparative period in some circumstances. Management considers that this is not necessary because the 2008 balance sheet is the same as that previously published.
IFRS 8 Operating segments - The standard replaces IAS 14 Segment Reporting and requires entities to adopt the ''management approach'' to report on their operating segments. The group's accounting policy on operating segments is presented below.
(c) Basis of consolidation
The Group accounts consolidate the financial statements of the Parent Company (Lombard Risk Management plc) and its subsidiary undertakings over which it has full control (see note 5 to the Parent Company balance sheet).
The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 31 March 2010. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated statement of comprehensive income from the date of acquisition or up to the date of disposal. All of the Group's assets and liabilities existing at the date of acquisition are recorded at their fair values reflecting their condition at that date. Profits or losses on intra‑group transactions are eliminated in full. Goodwill arising on consolidation was written off to reserves prior to 1 April 1999. Goodwill arising after this date is capitalized and under IFRS 3 goodwill is not amortized, but an impairment test is performed as appropriate, but at least annually. The value of goodwill is to be written down according to the outcome of the impairment test.
(d) Segment Reporting
In identifying its operating segments, management generally follows the Group's product lines. The Group operates two main product segments: Regulatory compliance software and Risk management and trading software. Regulatory compliance software is for regulatory, anti-money laundering and compliance systems to financial markets. Risk management and trading software provides trading, valuation and risk management systems to the financial markets. Each of these product lines is managed separately as each of these product lines requires different technology and other resources as well as marketing approaches. Corporate overheads, assets and liabilities which are not directly attributable to either product line are not allocated to segments.
(e) Going concern
The financial statements have, as in previous years, been prepared on a going concern basis. The Directors have formally considered this issue in the light of the operating losses in the current and earlier years, and the consequent operating cash outflows during these periods.
In forming an opinion that the Company and the Group is a going concern, the Directors have taken particular note of the positive trading performance in the year to date, both in the signing of new business contracts, and in the realised financial results. These show a up-turn in the Group's performance and, in particular, a backlog of contracted revenue which gives a clear view of revenues through the next three quarters. The level of this revenue is such that the Group is not reliant on substantial forecasted new business to generate sufficient funds for its operations.
The Directors have prepared cashflow forecasts for the periods ending 31 March 2011 and 31 March 2012 which show that the Company and Group have sufficient facilities for ongoing operations. Whilst there will always remain some inherent uncertainty within the aforementioned forecasts, the Directors believe the Company and Group have sufficient resources to continue in operational existence for at least twelve months from the date of approval of these financial statements.
Accordingly the Directors continue to adopt the going concern basis in preparing the financial statements for the year ended 31 March 2010.
(f) Revenue
Revenue represents the value of goods sold and services provided during the year, stated net of Value Added Tax. Revenue and loss before tax are wholly attributable to the principal activities of the Group.
The recognition of revenue depends on the type of income:
|
Licence income
|
For long-term projects which do not include the up‑front delivery of immediately usable software, revenue is recognized on both the consultancy and initial license elements in line with the estimated percentage of completion of the project. That part of licence and maintenance revenue invoiced simultaneously with the initial licence but considered to relate to the period when the licence is deemed to be live is deferred in its entirety until the live date, following which it is released to profit in equal daily installments over the duration of the relevant licence or maintenance. For other projects which do include the up-front delivery of immediately usable software, revenue is recognized in accordance with the invoicing schedule, on a percentage completion basis. For non-refundable licences revenue is recognized in full on customer acceptance. |
|
Customization income |
Recognized once the customization has taken place. |
|
Maintenance income |
Recognized evenly over the term of the maintenance contract. |
|
Rental income |
Recognized evenly over the term of the rental contract. |
|
Data subscription income |
Recognized evenly over the term of the data contract. |
|
Training income |
Recognized when the relevant courses are run. |
(g) Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. No depreciation is charged during the period of construction. Leasehold property is included in property, plant and equipment only where it is held under a finance lease.
The cost of computer hardware, fixtures, fittings and equipment, is written down to the residual value and is depreciated in equal annual instalments over the estimated useful lives of the assets. The residual values of assets or groups of like assets and their useful lives are reviewed annually.
The estimated useful lives of the assets are as follows:
|
Computer hardware |
two years |
|
Fixtures, fittings and equipment |
four years |
(h) Goodwill
Goodwill, representing the excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired, is capitalized and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognized immediately after acquisition in the statement of comprehensive income.
(i) Intangible Assets
Research and development
Expenditure on research is recognized as an expense in the period in which it is incurred.
Development costs incurred are capitalized when all the following conditions are satisfied:
·; completion of the intangible asset is technically feasible so that it will be available for use or sale;
·; the Group intends to complete the intangible asset and use or sell it;
·; the Group has the ability to use or sell the intangible asset;
·; the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;
·; there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
·; the expenditure attributable to the intangible asset during its development can be measured reliably.
Development costs not meeting the criteria for capitalization are expensed as incurred.
Computer Software
The cost of computer software, net of estimated residual value and impairment, is depreciated in equal annual instalments over one to two years based on the estimated useful lives of the assets. The residual values of assets or group of like assets are reviewed annually.
(j) Financial Instruments
Financial assets and liabilities are recognized on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group's financial instruments comprise cash, trade receivables and trade and other payables. Derivative instruments are not used by the Group and the Group does not enter into speculative derivative contracts.
Loans and receivables
Loans and receivables are initially stated at their fair value plus transaction costs, then subsequently at amortized cost using the effective interest method, if applicable, less impairment losses. Provisions against trade receivables are made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write‑down is determined as the difference between the assets' carrying amount and the present value of the estimated future cash flows.
Cash and cash equivalents
The Group manages short-term liquidity through the holding of cash and highly liquid interest bearing deposits. Only deposits that are readily convertible into cash, with no penalty of lost interest, are shown as cash or cash equivalent.
Trade payables
Financial liabilities are obligations to pay cash or other financial assets and are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorized as at fair value through profit or loss are recorded initially at fair value; all transaction costs are recognized immediately in the statement of comprehensive income. All other financial liabilities are recorded initially at fair value, net of direct issue costs.
Financial liabilities categorized as at fair value through profit or loss are re‑measured at each reporting date at fair value, with changes in fair value being recognized in the statement of comprehensive income. All other financial liabilities are recorded at amortized cost using the effective interest method, with interest‑related charges recognized as an expense in finance cost in the Income statement.
A financial liability is derecognized only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Where debt has been converted into equity, the liability is extinguished at no gain no loss. The equity is measured at the carrying value of the extinguished debt.
(k) Foreign exchange
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non‑monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non‑monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognized in the profit or loss in the period in which they arise. Exchange differences on non‑monetary items are recognized in the statement of changes in shareholders equity to the extent that they relate to a gain or loss on that non‑monetary item taken to the statement of changes in shareholders equity, otherwise such gains and losses are recognized in the statement of comprehensive income.
The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at the actual rate at the date of transaction. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to the "Foreign exchange reserve" in equity. On disposal of a foreign operation the cumulative translation differences (including, if applicable, gains and losses on related hedges) are transferred to the statement of comprehensive income as part of the gain or loss on disposal.
(l) Taxation
Current tax is the tax currently payable based on taxable profit for the year. The tax credit arises from the UK legislation regarding the treatment of certain qualifying research and development costs, allowing for the surrender of tax losses attributable to such costs in return for a tax rebate.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognized to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognized as a component of tax expense in the statement of comprehensive income, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity.
(m) Leased assets
The Group does not hold any finance leases.
All leases referred to are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term. Lease incentives are spread over the term of the lease.
Where leased buildings are vacated or under‑utilized a provision is made for the loss of benefit over the remainder of the lease.
(n) Pension costs
The Group operates a number of defined contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The amount charged to the income statement represents the contributions payable to the schemes in respect of the accounting period.
(o) Share options issued to employees
All share‑based payment arrangements granted after 7 November 2002 that had not vested prior to 1 April 2006 are recognized in the financial statements.
All goods and services received in exchange for the grant of any share‑based payment are measured at their fair values. Where employees are rewarded using share‑based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date using a Binomial model, taking into account the terms and conditions upon which the options were granted.
All equity‑settled share‑based payments are ultimately recognized as an expense in the statement of comprehensive income with a corresponding credit to "other reserves".
If vesting periods or other non‑market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate, share premium.
(p) Impairment testing of goodwill, other intangible assets and property, plant and equipment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash‑generating units). As a result, some assets are tested individually for impairment and some are tested at cash‑generating unit level. Goodwill is allocated to those cash‑generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors the related cash flows.
Goodwill, other individual assets or cash‑generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash‑generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset's or cash‑generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Impairment losses recognized for cash‑generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist.
(q) Key judgement in applying the entity's accounting policies and goodwill impairment
The Group's management makes estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a reasonable risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Recognition of revenue
Revenue is recognized according to the accounting policies as stated and is dependent upon the type of income. Where contracts include different elements of revenue, those elements are recognized in line with those policies, with fair values attributed to each component part.
Judgement is used in the recognition of revenue from long term projects.
If work is contracted on a fixed cost basis, revenue is recognized in line with an estimation of the percentage of completion of the project. This estimation is based upon the views of the consultants implementing the projects as to the proportion of the project completed and this is supported by data from a time recording system. There is, however, an element of judgement involved that can impact the recognition of revenue. This process and individual project recognition is reviewed regularly to ensure that, whilst still subjective, the reflection of revenue is the best approximation possible.
Where projects include the up-front delivery of immediately usable software, the element of non-refundable licence revenue is recognized on receipt of the software by the customer, with other revenue being recognized in line with the performance of the contracted services. The unbundling of this contract revenue requires management to exercise judgement as to the relative fair values of the component parts of the contract.
Goodwill impairment
An impairment loss is recognized if the amount by which the asset's or cash generating unit's carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows management makes assumptions about future operating results. These assumptions relate to future events and circumstances. The actual results may vary, and may cause significant adjustments to the Group's assets within the next financial year.
In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors.
2. BUSINESS SEGMENTATION
Management currently identifies the Group's two product lines as operating segments as further described in the accounting policies. These operating segments are monitored and strategic decisions are made on the basis of segment operating results.
Segment information can be analyzed as follows for the reporting periods under review.
|
|
Year ended |
Year ended |
|||
|
|
31 March 2010 |
31 March 2009 |
|||
|
|
£ |
£ |
|||
|
Revenue |
|
|
|||
|
Regulatory compliance software |
4,201,278 |
4,840,863 |
|||
|
Risk management and trading software |
4,748,181 |
3,853,587 |
|||
|
Group unallocated |
- |
- |
|||
|
Total revenue |
8,949,459 |
8,694,450 |
|||
|
Depreciation and amortisation |
|
|
|||
|
(93,893) (54,958) - |
(107,531) (62,952) - |
|||
|
Total depreciation and amortisation |
(148,851) |
(170,483) |
|||
|
Interest expense |
|
|
|||
|
- - (107,889) |
- - (134,736) |
|||
|
Total interest expense |
(107,889) |
(134,736) |
|||
|
Other costs |
|
|
|||
|
Regulatory compliance software |
(5,873,633) |
(6,630,776) |
|||
|
Risk management and trading software |
(3,537,500) |
(2,857,392) |
|||
|
Group unallocated |
(865,937) |
- |
|||
|
Total other costs |
(10,277,070) |
(9,488,168) |
|||
|
Total costs |
(10,533,810) |
(9,793,387) |
|||
|
Profit/(loss) |
|
|
|||
|
Regulatory compliance software |
(1,766,248) |
(1,897,444) |
|||
|
Risk management and trading software |
1,155,723 |
933,243 |
|||
|
Group unallocated |
(973,826) |
(134,736) |
|||
|
Total loss |
(1,584,351) |
(1,098,937) |
|||
|
Net assets |
|
|
|||
|
Regulatory compliance software |
(2,368,557) |
(602,309) |
|||
|
Risk management and trading software |
3,798,800 |
2,643,077 |
|||
|
Group unallocated |
(101,710) |
(1,728,998) |
|||
|
Net assets |
1,328,533 |
311,770 |
The two segments operate independently and there is no inter-segment income or expenditure.
The Group's revenues from customers and its non-current assets are divided into the following geographical areas.
|
|
Year ended |
Year ended |
|
|
31 March 2010 |
31 March 2009 |
|
|
£ |
£ |
|
Revenue |
|
|
|
United Kingdom |
3,985,568 |
4,948,005 |
|
Rest of Europe, Middle East and Africa |
1,121,372 |
1,491,944 |
|
The Americas |
2,738,291 |
1,586,906 |
|
Asia Pacific |
1,104,228 |
667,595 |
|
Total revenue |
8,949,459 |
8,694,450 |
|
Non-current assets |
|
|
|
United Kingdom |
17,178 |
44,553 |
|
The Americas |
14,749 |
26,560 |
|
Asia Pacific |
130,034 |
180,126 |
|
Non-current assets |
161,961 |
251,239 |
During the year 13% of the group revenue depended on a single customer in the Risk management and trading software segment (2009: No customer accounted for more than 10% of revenue)
3. DIRECTORS AND EMPLOYEES
|
|
2010 |
2009 |
|
|||||||
|
Directors |
£ |
£ |
|
|||||||
|
Emoluments |
408,131 |
431,215 |
|
|||||||
|
Pension costs |
1,890 |
9,326 |
|
|||||||
|
|
410,021 |
440,541
|
|
|||||||
|
Included within emoluments is £50,000 compensation for loss of office.
No share options were exercised by the highest paid Director. There were no pension contributions made in respect of the highest paid Director. During the year one director accrued benefit under a company pension scheme (2009: 1)
The directors of the company are the key management personnel.
Individual director's emoluments and compensation |
|
|||||||||
|
|
2010 £ |
2009 £ |
|
|||||||
|
John Wisbey |
220,000 |
200,000 |
|
|||||||
|
Ian Peacock |
25,000 |
25,000 |
|
|||||||
|
Brian Crowe |
20,000 |
20,000 |
|
|||||||
|
Keith Butcher (include £50,000 compensation for loss of office) |
116,686 |
- |
|
|||||||
|
Michael Thomas |
26,445 |
152,881 |
|
|||||||
|
Dan Kochav |
- |
16,667 |
|
|||||||
|
Christopher Wright |
- |
16,667 |
|
|||||||
|
Total |
408,131 |
431,215 |
|
|||||||
|
|
|
|
|
|||||||
|
Share options |
At start of the year |
Price paid |
Exercise price |
At the end of year |
Date from which exercisable |
|
Expire dates |
|||
|
John Wisbey |
555,555 |
- |
9p |
555,555 |
14/12/2006 |
|
14/12/2011 |
|||
|
John Wisbey |
1,194,445 |
- |
11p |
1,194,445 |
14/12/2006 |
|
14/12/2011 |
|||
|
Ian Peacock |
300,000 |
- |
9p |
300,000 |
14/12/2006 |
|
14/12/2011 |
|||
|
Brian Crowe |
200,000 |
- |
9p |
200,000 |
14/12/2006 |
|
14/12/2011 |
|||
|
Michael Thomas |
555,555 |
- |
9p |
555,555 |
24/04/2008 |
|
24/04/2013 |
|||
|
Michael Thomas |
444,445 |
- |
11p |
444,445 |
24/04/2008 |
|
24/04/2013 |
|||
|
|
|
|
|
|||||||
|
Staff costs including directors |
2010 |
2009 |
|
|
£ |
£ |
|
Wages and salaries |
6,355,573 |
5,804,417 |
|
Social security costs |
875,819 |
820,099 |
|
Pension costs |
129,110 |
112,357 |
|
Share-based payments charge (note 17) |
19,771 |
11,246 |
|
Total staff costs |
7,380,273 |
6,748,119 |
The average monthly number of employees (excluding Directors) during the year was:
|
|
2010 |
2009 |
|
|
Number |
Number |
|
Office and administration |
13 |
12 |
|
Operational |
156 |
146 |
|
Total |
169 |
158 |
4. LOSS FROM OPERATIONS
The loss from operations before taxation is stated after charging / (crediting):
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Auditor's remuneration - Company audit fee |
25,000 |
25,000 |
|
Fees payable to the Company auditor for other services |
|
|
|
Subsidiary company audit fees |
20,000 |
52,150 |
|
Tax services |
10,500 |
10,000 |
|
Other services |
569 |
- |
|
Depreciation |
137,891 |
157,032 |
|
Amortization |
10,960 |
13,451 |
|
Foreign exchange |
34,232 |
(41,610) |
|
Operating leases - land and buildings |
815,334 |
916,891 |
|
Research and development expenditure |
1,064,607 |
1,139,528 |
Fees payable to the Company's auditor, Grant Thornton UK LLP, and its associates for non-audit services to the Company itself are not disclosed in the individual financial statements of the Company because the Company's Group financial statements are required by the Companies (Disclosure of Auditor Remuneration) Regulations 2005, regulation 5(1) to disclose such fees on a consolidated basis.
5. FINANCE EXPENSE
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Interest on bank loans and overdrafts |
464 |
1,348 |
|
Other interest payable |
108,451 |
138,388 |
|
|
108,915 |
139,736 |
6. FINANCE INCOME
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Interest on bank deposits |
439 |
1,807 |
|
Other interest receivable |
587 |
3,193 |
|
|
1,026 |
5,000 |
7. TAXATION
|
The credit for the year is made up as follows: |
2010 |
2009 |
|
Corporate taxation on the results for the year |
£ |
£ |
|
UK |
- |
- |
|
Non‑UK |
(4,731) |
- |
|
|
(4,731) |
- |
|
Research and Development tax credit in respect of prior years |
- |
(96,074) |
|
Taxation (credit) charge for the year |
(4,731) |
(96,074) |
The Group has received to date R&D tax credits of £816,082 (2009: £816,082) relating to financial years ended 31 March 2002 to 2007. As for all companies that have received these credits, the amounts are subject to potential future HM Revenue & Customs clawback. During the year ended 31 March 2010 no tax losses (2009: £Nil) were surrendered in exchange for the research and development tax credit.
The tax assessed for the period is the standard rate of corporation tax in the UK of 28% (2009: 28%). The differences are explained as follows:
|
|
2010 |
2009 |
|
|
£ |
£ |
|
(Loss) on ordinary activities before tax |
(1,589,082) |
(1,253,732) |
|
(Loss) on ordinary activities multiplied by standard rate of corporation tax in the UK of 28% (2009: 28%) |
(444,943) |
(351,045) |
|
Effect of: |
|
|
|
Capital allowances for the period in excess of depreciation |
12,358 |
12,000 |
|
Increase in tax losses |
420,546 |
309,092 |
|
Expenses not deductible for tax purposes |
7,308 |
29,953 |
|
Subtotal |
(4,731) |
- |
|
Relief and refund available in respect of R&D expenditure |
- |
(96,074) |
|
Current tax (credit)/charge for the period |
(4,731) |
(96,074) |
The Directors have not recognised the deferred tax asset of £1.8m arising primarily on trading losses carried forward (2009: £1.5m).
8. DISCONTINUED OPERATIONS
Independent Valuation and Risk Services Limited ("IVRS") was sold by the Group on 14 February 2008. In the year ended 31 March 2009, the group received the full and final settlement of contingent consideration from the disposal, totaling £58,721. This was recognized in the Income Statement in the year ended 31 March 2009.
9. LOSS PER SHARE
Basic loss per share has been calculated by dividing the loss after taxation by the weighted average number of ordinary shares in issue during each period.
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has only one category of dilutive potential ordinary shares; those share options granted under the Enterprise Management Incentive Plan. When a loss is incurred, since the conversion of potential ordinary shares to ordinary shares would decrease the net loss per share, options are not dilutive and therefore diluted and basic losses per share are the same (see note 17).
Loss per share
|
|
Year ended |
Year ended |
|
|
31 March 2010 |
31 March 2009 |
|
(Loss) for the year and basic and diluted earnings attributable to ordinary shareholders (pound) |
(1,584,351) |
(1,098,937) |
|
Weighted average number of ordinary shares |
167,190,485 |
136,118,768 |
|
(Loss) per share (pence) |
(0.95) |
(0.81) |
|
Effect of dilutive share options |
- |
- |
|
Adjusted weighted average number of ordinary shares |
167,190,485 |
136,118,768 |
|
Diluted (loss) per share (pence) |
(0.95) |
(0.81) |
Continuing Operations
|
|
Year ended |
Year ended |
|
|
31 March 2010 |
31 March 2009 |
|
(Loss) for the year and basic and diluted earnings attributable to ordinary shareholders (pound) |
(1,584,351) |
(1,157,658) |
|
Weighted average number of ordinary shares |
167,190,485 |
136,118,768 |
|
(Loss) per share (pence) |
(0.95) |
(0.85) |
|
Effect of dilutive share options |
- |
- |
|
Adjusted weighted average number of ordinary shares |
167,190,485 |
136,118,768 |
|
Diluted (loss) per share (pence) |
(0.95) |
(0.85) |
Discontinued Operations
|
|
Year ended |
Year ended |
|
|
31 March 2010 |
31 March 2009 |
|
Profit for the year and basic and diluted earnings attributable on discontinued operations (pound) |
- |
58,721 |
|
Weighted average number of ordinary shares |
- |
136,118,768 |
|
Earnings per share (pence) |
- |
0.04 |
|
Effect of dilutive share options |
- |
- |
|
Adjusted weighted average number of ordinary shares |
- |
136,118,768 |
|
Diluted earnings per share (pence) |
- |
0.04 |
10. PROPERTY, PLANT AND EQUIPMENT
|
|
Computer |
Fixtures, fittings |
|
|
|
hardware |
and equipment |
Total |
|
Group |
£ |
£ |
£ |
|
Cost |
|
|
|
|
At 1 April 2008 |
877,686 |
547,736 |
1,425,422 |
|
Additions |
97,066 |
138,085 |
235,151 |
|
Foreign exchange effect |
41,012 |
33,093 |
74,105 |
|
At 31 March 2009 |
1,015,764 |
718,914 |
1,734,678 |
|
1 April 2009 |
1,015,764 |
718,914 |
1,734,678 |
|
Additions |
88,851 |
- |
88,851 |
|
Foreign exchange effect |
(35,653) |
(7,686) |
(43,339) |
|
At 31 March 2010 |
1,068,962 |
711,228 |
1,780,190 |
|
Depreciation |
|
|
|
|
At 1 April 2008 |
797,653 |
483,774 |
1,281,427 |
|
Charge for the year |
88,049 |
68,983 |
157,032 |
|
Foreign exchange effect |
42,238 |
14,183 |
56,421 |
|
At 31 March 2009 |
927,940 |
566,940 |
1,494,880 |
|
At 1 April 2009 |
927,940 |
566,940 |
1,494,880 |
|
Charge for the year |
78,191 |
59,700 |
137,891 |
|
Foreign exchange effect |
(3,934) |
(400) |
(4,334) |
|
At 31 March 2010 |
1,002,197 |
626,240 |
1,628,437 |
|
Net book value |
|
|
|
|
At 31 March 2010 |
66,765 |
84,988 |
151,753 |
|
At 31 March 2009 |
87,824 |
151,974 |
239,798 |
|
At 31 March 2008 |
80,033 |
63,962 |
143,995 |
11. INTANGIBLE ASSETS
|
|
|
Other intangible |
|
|
|
Goodwill |
assets |
Total |
|
Group |
£ |
£ |
£ |
|
Cost |
|
|
|
|
At 1 April 2008 |
3,632,680 |
230,500 |
3,863,180 |
|
Additions |
- |
20,496 |
20,496 |
|
Foreign exchange effect |
- |
2,475 |
2,475 |
|
At 31 March 2009 |
3,632,680 |
253,471 |
3,886,151 |
|
At 1 April 2009 |
3,632,680 |
253,471 |
3,886,151 |
|
Additions |
- |
10,353 |
10,353 |
|
Foreign exchange effect |
- |
(677) |
(677) |
|
At 31 March 2010 |
3,632,680 |
263,147 |
3,895,827 |
|
Amortization |
|
|
|
|
At 1 April 2008 |
- |
226,181 |
226,181 |
|
Provided in the year |
- |
13,451 |
13,451 |
|
Foreign exchange effect |
- |
2,398 |
2,398 |
|
At 31 March 2009 |
- |
242,030 |
242,030 |
|
At 1 April 2009 |
- |
242,030 |
242,030 |
|
Provided in the year |
- |
10,960 |
10,960 |
|
Foreign exchange effect |
- |
(51) |
(51) |
|
At 31 March 2010 |
- |
252,939 |
252,939 |
|
Net book value |
|
|
|
|
At 31 March 2010 |
3,632,680 |
10,208 |
3,642,888 |
|
At 31 March 2009 |
3,632,680 |
11,441 |
3,644,121 |
|
At 31 March 2008 |
3,632,680 |
4,319 |
3,636,999 |
The goodwill relates solely to the acquisition of the STB Systems Limited group of companies, since renamed Lombard Risk Compliance, which was acquired in 2005 and which constitutes the Group's regulatory compliance business. An impairment review has therefore been carried out on this cash-generating unit.
In accordance with IAS 36 'Impairment of Assets' the cash-generating unit has been assessed by comparing its carrying value to its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.
For the year ended 31 March 2010, the goodwill recoverable amount was determined based on value-in-use calculations, which are based on detailed ten year discounted forecast cash flows. Cash flows for the regulatory compliance business are based on management forecasts, which are approved by the board and reflects management's expectations of sales growth, operating costs and margin based on past experience as well as the current order book. Management has used a ten year period in the cash flow projections as the regulatory compliance business experiences a low level of customer turnover and the technology is based on regulations which, whilst subject to periodic amendment, are unlikely to be withdraw.
The calculations substantially rely on an existing order book for the year ended 31 March 2011. For the years 2012 to 2015, 5% is forecast for existing recurrent revenue with 0% growth rate used for 2016 to 2020. No annual growth has been taken into account for new business when preparing these value-in-use calculations.
Sensitivity to changes in key assumptions: Impairment testing is dependent on management's estimates and judgements, in particular in relation to the forecasting of future cash flows and the discount rate applied to the cash flows. Management has concluded that no reasonably possible change in the key assumptions would cause the carrying value of goodwill to exceed its recoverable account.
The table below shows the impairment change that would be required if the assumptions in the calculation of the goodwill value in use were changed:
25% increase in discount rate 25% decrease in growth rate
£ £
|
|
Goodwill impairment charge - -
|
|
12. TRADE AND OTHER RECEIVABLES
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Trade receivables |
846,224 |
1,827,243 |
|
Other receivables |
348,916 |
511,343 |
|
Prepayments and accrued income |
384,693 |
503,640 |
|
|
1,579,833 |
2,842,226 |
The amounts are short term and the Directors consider that the carrying amount of these trade and other receivables approximates to their fair value. All of the Group's trade and other receivables have been reviewed for indications of impairment. As at 31 March 2010, trade receivables of £846,224 (2009: £1,827,243) were fully recoverable. An impairment provision of £224,467 (2009: £52,914) has been made against the invoices of 28 clients (2009: 4 clients). In addition, some of the unimpaired trade receivables are past due as of the reporting date. Trade receivables past due but not impaired are as follows:
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Not more than three months |
213,074 |
512,411 |
|
More than three months but not more than six months |
- |
235,224 |
|
More than six months but less than a year |
3,752 |
85,144 |
|
More than one year |
- |
74,475 |
|
|
216,826 |
907,254 |
All other receivables (non‑trade) are not past due.
Movements in Group provisions for impairment of trade receivables, as included in administrative expenses, are as follows:
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Opening balance |
52,914 |
78,746 |
|
Provision for receivables impairment |
171,553 |
- |
|
Receivables written off in the year |
- |
(25,832) |
|
Closing balance |
224,467 |
52,914 |
The Group operates in a global market with income arising in a number of different currencies, principally Sterling, Euros or US Dollars. The Group does not hedge potential future income, since the existence, quantum and timing of such income cannot be accurately predicted.
13. TRADE AND OTHER PAYABLES
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Trade payables |
346,394 |
519,566 |
|
Other taxes and social security costs |
589,200 |
859,383 |
|
Other payables |
1,017,843 |
1,138,259 |
|
Shareholder loans (see note 20) |
- |
1,330,000 |
|
|
1,953,437 |
3,847,208 |
14. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
The Group's multi‑national operations expose it to financial risks that include market risk, credit risk, operational risk and liquidity risk. The Directors review and agree policies for managing each of these risks and they are summarized below. These policies have remained unchanged from previous years.
Market risk
Market risk for the Group encompasses all those market risk factors that impact the value of the Group's assets and liabilities and the expected value in base currency of the Group's revenues and costs. The main risk factors are currency risk, inflation risk, and interest rate risk. The Group's policies for managing these are as follows:
i) Currency risk
The Group is exposed to translational and transactional foreign exchange risk as it operates in various currencies, including US Dollars, the Euro, Chinese Yuan, Hong Kong Dollars and Singapore Dollars. Although, through its own software, the Group has access to sophisticated models for the management of foreign exchange risk, there has been no use of foreign exchange derivatives to manage this position on the basis that historically the overall effect on the Group's income statement has not been large enough to warrant this activity. While the Group operates in various different currencies, it has low new exposure to any individual currency at the balance sheet date and consequently no sensitivity analysis on currency is provided.
ii) Inflation risk
The Group has exposure to the inflationary effect of operating in countries in which it operates, offset by its ability to raise prices in those countries in which it sells. The Group's cost base is mainly exposed to the inflation rates and changes in payroll taxes in the United Kingdom, the United States and China. The inflation rate for salaries in specialized parts of the financial sector in a financial center such as London, New York or Shanghai is often different from the relevant country's overall rate of wage inflation. Most of the Group's software contracts give the Group the ability to raise prices on a formula linked to the inflation rate of the currency of the contract. No specific hedging of inflation risk has been carried out.
iii) Interest rate risk
Interest rate risk arises primarily on the investment of the Group's cash balances or on its borrowings and the present value of the Group's receivables. The Group finances its operations through a mixture of retained cash reserves and director loans at fixed rates. When the Group is a net depositor of funds, the Group stands to gain if interest rates rise and to lose if interest rates fall, ignoring any possible positive or negative correlation effects with business demand for the firm's products or inflationary pressures on the firm's cost base that might arise from changes in interest rates. When the Group is a net borrower of funds, the opposite is the case. Although through its own Oberon® software the Group has access to sophisticated models for the management of interest rate risk, there has been no use of interest rate derivatives to manage this position on the basis that the amounts are not large enough to warrant this activity. The policy of the Group is to monitor exposure to interest rate risk and take into account potential movements in interest rates as well as liquidity considerations when selecting methods of financing.
Credit risk
Most of the Group's business is with banks, asset management firms and other high quality companies, and the Group's bad debt experience over 15 years has been negligible. The Group consequently has not considered taking out credit insurance and is not likely to do so in the foreseeable future. Deposits are placed with high quality banks.
Although through its own Firmament® software the Group has access to sophisticated models for the management of credit spreads and credit derivatives, there has been no use of credit derivatives to mitigate counterparty risk and no such use is contemplated.
The Group's exposure to credit risk is limited to the carrying amount of financial assets recognized at the balance sheet date, as summarized below:
|
|
2010 |
2009 |
|
Classes of financial assets - carrying amounts |
£ |
£ |
|
|
|
|
|
Cash and cash equivalents |
702,194 |
150,999 |
|
Trade and other receivables |
1,195,140 |
2,338,588 |
|
|
1,897,334 |
2,489,587 |
Operational risk
The Group has numerous operational risks, ranging from control over bank accounts to its processes for delivering and supporting software to a required level of quality and on a timely basis, and retention and recruitment of key personnel. A key risk, as for any company, is the reputation risk that might arise from poor execution, non delivery or late delivery of a high profile project or breach of client confidentiality for sensitive data. Further risks may arise where late delivery of software or untimely delivery of related services causes a client to miss regulatory deadlines. A detailed operational risk review is outside the scope of this report, but the Board attaches importance to maintaining appropriate internal controls to identify and limit these risks.
Liquidity risk
The Group seeks to manage financial risk by ensuring that sufficient liquidity is available to meet foreseeable needs and by investing cash assets safely as well as profitably. At 31 March 2010 the Group financial liabilities were as follows:
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Current liabilities |
|
|
|
Trade and other payables |
1,364,237 |
1,657,825 |
|
Categorized as financial liabilities measured at amortized costs |
1,364,237 |
1,657,825 |
All amounts are short term and payable in 0 to 3 months.
15. PROVISIONS
As at 31 March 2009 the Group had an office provision for space surplus to its needs which it had been unable to re‑let because of the current economic conditions. The lease on the office space run until September 2009 and the Group made provision for the contracted cost of the surplus space up to the date of expiry of the lease. As at 31 March 2010, the surplus office lease had expired and the group released all the provision made in the year ended 31 March 2009 in full to the income statement.
|
|
£ |
|
Balance at 31 March 2009 |
137,664 |
|
Amount released to income statement |
(137,664) |
|
Total provision for future lease costs due within one year |
Nil |
16. SHARE CAPITAL
|
|
2010 |
2009 |
|
|
£ |
£ |
|
Authorized |
|
|
|
714,034,085 ordinary shares of 0.5p each |
3,570,170 |
3,570,170 |
|
Allotted, called up and fully paid |
|
|
|
206,926,786 ordinary shares of 0.5p each (2009: 136,176,786) |
1,034,634 |
680,884 |
|
429,829,575 deferred shares of 0.1p each |
429,831 |
429,831 |
|
|
1,464,465 |
1,110,715 |
The deferred shares carry no rights to receive dividends or to participate in any profits of the Company. The shareholders are not entitled to attend any meetings of the Company or have any rights to participate in any return of capital (except on a winding up). The deferred shares are not transferable other than with the consent of all the Directors of the Company.
Share issue
During the year the Company issued 70,750,000 0.5p ordinary shares at the market value of 4p each. The Company recorded this transaction as £353,750 issuance of Ordinary Share Capital and recognized £2,476,250 as Share Premium, from which was netted off £194,121 of issue costs. Part of the shares issued was to the company directors, further details of which are provided in note 20.
17. SHARE OPTIONS
Employee share options charge
The fair value is based on a number of assumptions as stated below.
In accordance with the accounting policy the volatility of the Company's shares for the relevant period has been estimated at 30%, giving rise to a charge to the income statement for the year ended 31 March 2010 of £19,771, (2009: £11,246), with the same amount being credited to reserves. The expected volatility has been based on historical volatility, using market prices of Lombard Risk Management plc shares between 4 September 2004 and 31 March 2008.
Equity‑settled share‑based payments
The Company has a share option scheme for all employees. Options are granted to employees based on the discretion of the Directors to reward performance. The vesting period is usually five years. The options are settled in equity once exercised. If the options remain unexercised after a period of five years from the date of grant, the options expire. Options are forfeited if the employee leaves the Company.
The fair values of the options were calculated using a numerical binomial model assuming the inputs shown below:
|
|
|
At start |
|
|
|
At end |
Exercise |
Exercise |
Exercise |
|
|||||||||
|
|
|
of year |
Granted |
Exerc-ised |
Lapsed |
of year |
price (p) |
date from |
date to |
|
|||||||||
|
2004 EMI Scheme |
|
1,135,000 |
- |
- |
(405,000) |
730,000 |
9.00 |
March-06 |
March-11 |
|
|||||||||
|
|
|
2,050,000 |
- |
- |
- |
2,050,000 |
9.00 |
April-08 |
April-13 |
|
|||||||||
|
|
|
1,260,000 |
- |
- |
(390,000) |
870,000 |
9.00 |
Dec-08 |
Dec-13 |
|
|||||||||
|
|
|
- |
3,900,000 |
- |
- |
3,900,000 |
6.00 |
Oct-11 |
Oct-16 |
|
|||||||||
|
|
|
1,600,000 |
- |
- |
(600,000) |
1,000,000 |
6.00 |
June-10 |
June-15 |
|
|||||||||
|
Unapproved Scheme |
|
1,520,555 |
- |
- |
- |
1,520,555 |
9.00 |
Dec-06 |
Dec-11 |
|
|||||||||
|
|
|
1,194,445 |
- |
- |
- |
1,194,445 |
11.00 |
Dec-06 |
Dec-11 |
|
|||||||||
|
|
|
915,555 |
- |
- |
- |
915,555 |
9.00 |
April-08 |
April-13 |
|
|||||||||
|
|
|
444,445 |
- |
- |
- |
444,445 |
11.00 |
April-08 |
April-13 |
|
|||||||||
|
|
|
- |
100,000 |
- |
- |
100,000 |
6.00 |
Oct-11 |
Oct-16 |
|
|||||||||
|
|
|
10,120,000 |
4,000,000 |
- |
(1,395,000) |
12,725,000 |
- |
- |
- |
|
|||||||||
|
Grant date |
|
|
|
24 April 2006 |
24 April 2006 |
24 April 2006 |
1 December 2006 |
20 June 2008 |
19 October 2009 |
||||||||||
|
Share price at grant |
|
|
|
6.75p |
6.75p |
6.75p |
7.75p |
6.25p |
5p |
|
|||||||||
|
Exercise price |
|
|
|
9p |
9p |
11p |
9p |
6p |
6p |
|
|||||||||
|
Contractual life (years) |
|
|
|
5 |
5 |
5 |
5 |
5 |
5 |
|
|||||||||
|
Staff turnover |
|
|
|
50% |
50% |
50% |
50% |
50% |
50% |
|
|||||||||
|
Risk free rate |
|
….Discount curve used for UK on the day of valuation.... |
|
||||||||||||||||
|
Expected volatility |
|
|
|
30% |
30% |
30% |
30% |
30% |
30% |
|
|||||||||
|
Expected dividend yield |
|
|
|
- |
- |
- |
- |
- |
- |
|
|||||||||
|
Fair value of option |
|
|
|
2.09p |
2.09p |
1.65p |
2.20p |
2.55p |
1.51p |
|
|||||||||
Details of the number of share options and the weighted average exercise price ("WAEP") outstanding during the year are as follows:
|
|
2010 Number |
2010 WAEP |
2009 Number |
2009 WAEP |
|
Outstanding at beginning of the year |
10,120,000 |
8.37p |
8,965,000 |
9.18p |
|
Granted during the year |
4,000,000 |
6p |
1,600,000 |
6p |
|
Exercised during the year |
- |
- |
- |
- |
|
Forfeited during the year |
(1,395,000) |
7.7p |
(445,000) |
9.00p |
|
Outstanding at end of the year |
12,725,000 |
8.1p |
10,100,000 |
8.37p |
|
Exercisable at the year end |
7,250,000 |
- |
8,520,000 |
- |
The share options outstanding at the end of the year have the following exercise prices:
|
Expiry date |
Exercise price |
2010 Number |
2009 Number |
|
24 April 2013 |
9p |
5,216,110 |
5,621,110 |
|
24 April 2013 |
11p |
1,638,890 |
1,638,890 |
|
1 December 2013 |
9p |
870,000 |
1,260,000 |
|
20 June 2015 |
6p |
1,000,000 |
1,600,000 |
|
19 October 2016 |
6p |
4,000,000 |
- |
|
|
|
12,725,000 |
10,120,000 |
18. COMMITMENTS
The Group had commitments under non‑cancellable operating leases in respect of land and buildings as follows:
|
|
2010 |
2009 |
|
|
£ |
£ |
|
On leases which expire in one year or less |
126,234 |
283,662 |
|
On leases which expire in one to five years |
904,080 |
1,716,681 |
|
On leases which expire over five years |
- |
- |
|
Total |
1,030,314 |
2,000,343 |
For the comparative period this includes the lease provision of £137,664 (see note 15).
19. PENSIONS
A Group company contributes to a defined contribution pension scheme on behalf of a limited number of employees of that subsidiary. The assets of the scheme are administered by trustees in a fund independent of the Company. Other defined contribution pension schemes to which the Group makes contributions on behalf of employees are of the stakeholder variety, again totally independent of the Company.
20. RELATED PARTY TRANSACTIONS
John Wisbey made advances to the Company of £20,000 and £600,000 on 29 June 2007 and 31 August 2007 respectively. This loan was subject to review on 31 October 2007 and repayable by 29 February 2008. On 18 February 2008, £150,000 was repaid to John Wisbey, leaving a balance outstanding of £470,000 at the end of the financial year to March 2008. In 2008 John Wisbey made further advances of £200,000 and £420,000 respectively in July and August 2008. The balance outstanding to him at the end of the financial year to March 2009 was therefore £1,090,000. In August 2009 John Wisbey made another advance of £100,000. The total balance outstanding to him of £1,190,000 was settled in October 2009 partially (£790,000) by conversion of 0.5p ordinary shares at 4p per share as the same time and price as the institutional placing and partially (£400,000) by cash payment. The loan carried interest at 1% per month during the outstanding periods.
Ian Peacock advanced an amount of £10,000 to the Company on the 12 July 2007. Michael Thomas advanced a sum of £30,000 on the 29 June 2007. The loan was interest free until 31 March 2008 and thereafter the loan attracted interest of 1% per month. Both Ian Peacock and Michael Thomas loans were settled in October 2009 by conversion of the full outstanding balance to 0.5p ordinary shares at 4p per share. Both loans carried interest at 1% per month before settlement.
In June 2008 Brian Crowe advanced £200,000 to the Company. In July 2009 Brian Crowe made further advance of £200,000. The total balance £400,000 was settled in October 2009 half by conversion to 0.5p ordinary share and half by cash payment. The loan carried interest at 1% per month while outstanding.
There are no outstanding Directors' Loans at the end of the financial year.
21. CONTROLLING RELATED PARTIES
In the opinion of the directors, there is no ultimate controlling party at 31 March 2010.
22. CASH FLOW STATEMENT - MAJOR NON-CASH TRANSACTIONS
As disclosed under Note 20 above, the Company settled director loans totalling £1.03m during the year through conversion of the debt to equity.
Related Shares:
Lombard Risk Management