Half Yearly Report

16 October 2014

Lombard Risk Management plc

("Lombard Risk" or the "Company")

Interim results for the six months ended 30 September 2014

Lombard Risk Management plc (LSE:LRM), a leading global provider of collateral management, liquidity and regulatory reporting and compliance solutions for the financial services industry, is pleased to announce its interim results for the six months ended 30 September 2014.

Highlights

• Revenue of £9.3m (2013: £7.3m) up 27.7%, supported by an order book of contracted revenue at £5.1m (2013: £5.4m).

• 121 COREP contracts now signed with 62 being for new names.

• EBITDA of £0.8m (2013 restated: loss of £0.02m) following revenue growth partially offset by increased staffing levels to deliver additional contracts.

• Profit before tax of £0.01m (2013 restated loss: £0.5m).

• Cash at period end of £2.2m (2013: £1.8m) with reduction in debt to £0.3m (2013: £1.0m).

• Continued investment in European Banking Authority regulatory initiatives including COREP and FINREP, the COLLINE® Optimisation module, and the next generation of REPORTER.

• Interim dividend of 0.035p (2013: 0.030p) per Ordinary Share.

Current trading and outlook

• European Banking Authority's Asset Encumbrance and Liquidity Coverage Ratio regulations create further opportunities in H2 and into the following financial year.

• Good pipeline adds to revenue visibility from contracted or recurring revenue.

John Wisbey, Chief Executive, commented:

"The Company achieved a record first half revenue of £9.3 million, up 27.7% on the previous year, and as we again expect our revenues to be weighted towards the second half, this bodes well for our full year performance. The revenue rise was driven, in part, by our regulatory programme for the European Banking Authority's COREP exceeding management expectations, with 121 clients now signed up for COREP, but we also signed some useful deals for COLLINE® our collateral management platform."

"The outlook for revenue growth remains promising, with market and regulatory environments continuing to favour the Company's product positioning in regulation, compliance and risk management despite a tough budgetary environment in the financial sector. In addition, the investment we have made in the last year can be expected to stand us in good stead in the years to come."

Enquiries

Report of Philip Crawford, Non Executive Chairman

It has been a busy six months at Lombard Risk Management, with first half revenues up by over 27.7% on the same period last year. Sales activity has been encouraging both for direct sales and with partners, and this should set the scene for a strong second half in line with market expectations.

The main driver for success over the past year has been the COREP program, for which we now have 121 clients. This is a much higher number than originally anticipated. The period saw the first key regulatory deadlines for COREP and it was gratifying that our XBRL software allowed almost all our clients to transmit successfully on the first reporting date, with only a small number unable to do so, mainly owing to data preparation issues. The regulatory wave continues with COREP now giving way to FINREP and Asset Encumbrance as a source of likely new business in the next few months.

Our investment in technology is paying dividends, with additional clients for both our major product lines of regulatory and risk, and a good sales pipeline.

The positive level of sales activity has resulted in a continued substantial order book/backlog of contracted revenue totalling £5.1m. Much of this revenue will be recognised in the second half of the year along with in excess of £4.5m of annually recurring revenue.

The Company is now well into its major investment cycle, prompted by opportunities arising from recent regulatory and market changes. Such changes will in all probability continue and the Company will continue to look carefully at the opportunities that these changes bring. Key initiatives at present are the final touches to the COREP and FINREP products, the Asset Encumbrance product, completion of the function-rich Optimisation module for COLLINE® and pushing ahead with the next generation REPORTER product.

On a macro-economic level, regulation in the financial world continues at a very high level, and the importance of investment in technology is being further emphasised by pressure to improve cost/income ratios further and more recently by new rules that require senior individuals in financial institutions to accept personal liability for compliance failures. The Board continues to be quietly confident that the future will bring a sustained period of growth for the Company.

Chief Executive Officer's statement

Summary

In the previous two financial years we achieved respectively 45.6% and 35.6% of our total annual revenues in the first half of the financial year.We stated at the AGM, earlier this year, that we again expected revenues to be weighted to the second half.

I am pleased to report that recognised revenues achieved in the six months ended 30th September 2014 were our highest ever for the first half at £9.3m, up 27.7% on the same period last year. Looking further back it is useful to note that revenues in the 12 months to 30th September 2014 were also our highest ever at £22.4m against £16.4m in the 12 months to 30th September 2013, a year on year gain of 36.9%.

We have continued to maintain careful control over our costs, resulting in a Profit Before Tax (PBT) of £13k (2013: restated loss of £523k) and EBITDA of £781k (2013: restated loss of £22k). Looking at the trend over the last year, PBT for the 12 months to 30th September 2014 was £5.0m and EBITDA was £6.7m. The business has been cash generative over the last 12 months with net cash at 30th September 2014 of £1.8m (2013: £0.8m). There has been a small net cash outflow since the 31st March 2014 year end (net cash £2.3m), but this is to be expected from the second half weighting of revenues.

Our regulatory programme for the European Banking Authority's COREP exceeded management expectations, with 121 clients now signed up for COREP. Almost all our clients were able successfully to transmit on the initial regulatory date with our XBRL software, although work is ongoing to automate the process fully at all clients and keep up with further changes to regulatory XBRL taxonomies.

While the Company does not make revenue forecasts we have good visibility, based on business won or awarded to date, of a significant proportion of the full year revenue forecasts in the market. In addition, we have a good pipeline of business for both the risk and regulatory side of the business including a significant pipeline for another European Banking Authority regulation called Asset Encumbrance. We therefore approach the second half of the year with confidence.

The outlook for revenue growth remains promising, with a market environment continuing to favour the Company's product positioning in regulation, compliance and risk management despite a tough budgetary environment in the financial sector. In addition, the investment we have made in the last year can be expected to stand us in good stead in the years to come.

Clients and Business Won

We have continued to make significant progress in the UK on the regulatory side with 121 customers now won for the European Banking Authority's COREP. Delivering a program of this scale with everyone having the same regulatory deadline was a notable achievement by our Development and Professional Services teams.They were under substantial pressure from regulatory teams in banks, all of whom had very tight delivery objectives of their own to meet. Almost all 121 clients were able to meet the initial regulatory COREP deadline with our XBRL utility, and those that were not were mainly firms that experienced particularly difficult data preparation issues.

We have also been working on the European Banking Authority's FINREP and more recently Asset Encumbrance and Liquidity Coverage Ratio regulations. Both of these represent significant opportunities for the Company in the next 12 months. 50 of the 121 COREP clients were on the Company's fully functional model, and the remaining 71 used our new technology for XBRL transmission only.While the latter contract wins were of comparatively lower value, most of the clients were completely new names for us for regulatory reporting and we expect that some of these new clients gained in this land-grab should become more valuable over time. Over the life of the program, we gained 62 new names for COREP, and 16 of these were direct gains from our traditional competitors. This has been a very successful program.

We also won regulatory contracts for other reporting functionality in the UK and in North America and Asia. Our new regulatory technology was instrumental in gaining us contracts for XBRL in Asia.

Our collateral market product for COLLINE has continued to make headway with a number of deals won in Europe and Japan and several other deals being worked. We expect to see the benefit of our alliances strategy come through this year for COLLINE. Part of our investment in regulatory product is to ensure that we can meet the regulatory requirements of the very largest banks at head office or regional head office level as well as at branch level. This has involved work on EMIR and IOSCO requirements just as in the previous year there was work for Dodd Frank. We still expect the regulatory impact on the collateral management market to be a significant growth driver for the Company.

We continue to maintain a healthy revenue backlog/ order book of contracted revenue, and again enter the second half with a strong order book. The contractual backlog/order book was £5.1m at the period end, down from £5.4m a year previously, but deals in early October have already added to this.

We regard our client base of around 300 financial institutions including 30 of the top 50 banks in the world as one of our most valuable assets, and in many cases we are seen as a trusted provider rather than merely as a vendor. Our client retention rate for all products remains very high at over 95% with any attrition mostly caused by bank branch closures outside our control.

Finance Review

Recognised revenue rose by 27.7% against the comparable half year to £9.3m (2013: £7.3m). Annually recurring revenues for the half year totalled £4.3m (2013: £4.2m), being 47% (2013: 58%) of total revenues.

Operating profit before depreciation and amortisation (EBITDA) was £0.8m (2013 restated: loss of £22k). Cash at the end of the period was £2.2m (2013: £1.8m) with £0.3m debt (2013: £1.0m). Net cash was £1.8m (2013: £0.8m). The Company raised no money in the period either through issuing equity or through the exercise of share options, and used £0.3m (2013: £0.7m) to service and repay debt. A dividend of £0.1m (£0.1m) was paid.

Capitalised development costs in the period totalled £2.0m (2013: £2.3m), representing 56% (2013: 68%) of total technology and support costs. The decrease represents continued investment in new products but also the requirement under accounting standards to cease capitalising development spend when a product has become capable of operating in the manner intended by management. Our main development spend continued to be on solutions for executing the European Banking Authority's Common Reporting (COREP) and Financial Reporting (FINREP), finishing a new collateral optimisation product and multiple regulatory enhancements for collateral, and a next generation regulatory product.

Attention is drawn to Notes 4 and 5 in respect of accounting adjustments to the treatment of development costs and amortisation thereof in the financial years 2012 and 2013, made following discussions with the Financial Reporting Council. In the audited financial statements for those years we had started amortisation of capitalized development expenditure too soon but had also continued to capitalise new expenditure on some projects for too long. There is no material impact on the income statement or balance sheet for the current period or for those of the full year ended 31st March 2014 but in earlier periods back to 2012 this error made a difference to the split between cash flows from operating activities and cash flows from investing activities. The detail is covered in Notes 4 and 5.

Investment in software product development

During the period we have continued to invest heavily in the development of our software products, primarily in the areas driven by regulation and by regulatory and market initiatives around derivatives reform. This meant gearing ourselves up for the European Banking Authority's COREP and FINREP regulations. While COREP has been developed as a new module of the existing REPORTER product, the collateral initiatives have been developed through our COLLINE® product which has required appreciable expenditure. In addition, we have continued to invest in R&D for other products. For example for COLLINE® we have continued to develop our offering for Clearing and have invested in ensuring that COLLINE® is compliant with new Dodd-Frank and EMIR regulations. We have also enhanced COLLINE® by delivering a superior module for Repos and ETFs, and we have invested in COLLINE's Optimisation module to allow optimal inventory management of collateral.

We have struck a prudent balance between innovation and other investment required to take advantage of opportunities in our core regulatory and collateral businesses. We have approximately 150 staff engaged in software development and testing, mostly based in our development and testing centre in Shanghai. Having this capability has allowed us to take on much more work than we could have done a few years ago. Much of our R&D is driven by client requirements and is often client funded rather than speculative.

Expansion of intangible assets

Intellectual Property

The Company has always focused on developing its own software products rather than selling the products of third parties. With significant investment over time in our products like REPORTER, REG-Reporter®, COLLINE® and OBERON, and more recently in REFORM, REPORTER MIS, Compliance Assessor and other software for our future regulatory products, we have a valuable foundation of IP from which to build. Moreover, our modern products are being designed with reusable common libraries of software or web services, meaning that we should be able to achieve quicker time to market and leverage our development effort more efficiently.

Brands

Our main brands at present are:

REPORTER - Regulatory Reporting in multiple jurisdictions. REPORTER is the biggest market brand for Bank of England and now European Banking Authority regulatory reporting in the UK, and an important brand in various Asian and European countries as well as the USA.

REG-Reporter® - Regulatory Reporting in the USA, Canada and other jurisdictions. REG-Reporter is the biggest brand used by foreign banks in the United States with more clients than all our international competitors' products combined.

COLLINE® - Collateral Management for OTC and Cleared Derivatives, Repos, Securities Lending, ETFs and Listed Derivatives, and Collateral Optimisation around the resulting collateral inventory. COLLINE® is one of the top brands in these markets.

REFORM® - Pre and post trade solutions and transactional reporting for the derivatives reform initiatives such as Dodd-Frank and EMIR. Other modules of the REFORM® engine provide connectivity and message transformation, for example enabling COLLINE® to connect to exchanges and to messaging systems.

OBERON® - Financial instrument valuation and related risk reporting. OBERON® has been a very durable system over many years.

COMPLIANCE ASSESSOR™ - Managing Regulatory Compliance Risk through mapping of regulations and internal policies against the actual actions taken by firms to ensure their compliance with such regulations and internal policies.

REPORTER MIS - Flexible web based reporting tool allowing reporting to be produced from, for example, COLLINE® in conjunction with another third party system.

Partnership Programme

Our investment in developing alliance partners is starting to bear fruit.We believe this will add an appreciable level of scalability to the Company over and above the level of profit growth achievable only through a direct sales force. We have announced alliances including Broadridge and NTT Data; we have won deals in conjunction with partners in Japan; and we are working on multiple other partner relationships and opportunities. Some are revenue enhancing, while others allow us to scale up implementation more easily owing to enhanced professional service delivery capability.

Market assessment

The regulatory market background remains net favourable to the Company. We are about half way through an increase in the depth and breadth of regulation that banks and financial institutions face worldwide. Complying with these regulations has been a driver of our sales and a good chance to gain market share. However we expect that there will be a further increased wave of expenditure as banks review the enormous ongoing cost of regulation and look to achieve greater efficiency in how they spend that money. We believe our products will be seen as part of the solution to greater efficiency rather than as part of the problem. The collateral market also has considerable opportunities, with collateral optimisation turning this industry into one that helps the front office make money rather than simply helping Operations departments work more efficiently. In addition, the renewed focus by regulators such as the Financial Conduct Authority on conduct and the initiative to put personal liability for compliance failures onto senior managers should mean that financial institutions will spend appreciably to reduce their risks to such failures.

Business improvement and our people

We are pleased to welcome Nigel Gurney as Chief Financial Officer and board member as of 1st September 2014. Together with our appointment of John Groetch as Managing Director, Americas, this completes most of our senior level hiring.We are looking to fill a new position of Chief Operating Officer to lead the revenue and client facing side of the business, and this process is ongoing.

We will be moving to new offices in London in early 2015 as our lease on Ludgate House will come to an end in March and the building is scheduled for redevelopment. We are at an advanced stage of securing new premises.

Dividend

The Company will pay an interim dividend of 0.035p per share on 14 November 2014 to those shareholders on the register on 31 October 2014.

Outlook

For all the reasons mentioned earlier, the Board is optimistic about the second half of the year owing to the good level of contractual backlog/order book as at 30th September 2014, the likelihood of continued new business from the European Banking Authority's FINREP, Asset Encumbrance and Liquidity Coverage Ratio regulations following on from COREP and other selections made of our software. We have good recurring revenues and further predictable revenues from fixed-term licence renewals and contractual backlog as well as a healthy pipeline. The Board remains cautiously optimistic about the prospects for the Company in the medium term, especially given the macro effect of a continuing level of regulatory change all over the world and investment in collateral management combined with the likelihood of additional revenue streams resulting from our product strategy, our partnering strategy and our investment in both of these areas. Risks remain however, not only from competition but from global political developments, including the sanctions regime with Russia causing a slowdown in European economies and the effect this could have on European banks. As always a postponement of European regulatory deadlines could affect the timing of the Company's revenues, but we do not expect this to impact FINREP or Asset Encumbrance.

I would like personally to thank the many staff in London, Shanghai and our other offices who have gone the extra mile for us in the last few months. I would single out those who have worked incredibly hard to ensure that the COREP program has been successful. This is much appreciated as is the excellent support of our shareholders, bankers and advisors.

John Wisbey

Chief Executive Officer

15 October 2014

Consolidated unaudited interim statement of comprehensive income

For six months ended 30 September 2014

Consolidated unaudited interim statement of financial position

As at 30 September 2014

Consolidated unaudited interim statement of changes in equity

For six months ended 30 September 2014

Consolidated unaudited interim statement of cash flow

For six months ended 30 September 2014

Notes to the interim report

For six months ended 30 September 2014

1. Basis of preparation

This interim report was approved by the Board on 15 October 2014.

These consolidated financial statements are for the six months ended 30 September 2014. They have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretation Committee ("IFRIC") interpretations as at 30 September 2014, as adopted by the European Union. They do not include any of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2014.

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 statement of financial position 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 Company's financial statements for the year ended 31 March 2013 have been subject to a review by the Conduct Committee of the Financial Reporting Council ("FRC"). This review identified errors with the Company's accounting policies for capitalising and amortising product development costs. The Company acknowledges that accounting errors were made in the 2012 and 2013 financial statements, further details of which are set out in Note 5 to these interim financial statements.

This condensed consolidated financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 were approved on 12 May 2014. These accounts, which contain an unqualified audit report under Section 495 of the Companies Act 2006 and which did not make any statements under Section 498 of the Companies Act 2006, have been delivered to the registrar of companies in accordance with Section 441 of the Companies Act 2006.

2. Earnings per share

Basic earnings per share has been calculated by dividing the profit on ordinary activities after taxation attributable to the owners of the parent by the weighted average number of Ordinary Shares in issue during each period.

Diluted earnings 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, being share options granted under the Enterprise Management Incentive Plan and Unapproved Scheme.

3. Taxation

The taxation charge is based on the effective tax rate expected to apply for the full year, taking into account the anticipated benefit of brought forward tax losses. The effective tax rate is lower than the standard tax rate, principally as a result of prior years' tax losses brought forward which are available within the Group. In addition, the charge for this interim period includes £7,000 of current tax paid by overseas subsidiaries.

4. Intangible Assets

During the year ended 31 March 2014, one of the Risk Management products was identified as impaired following a review of the carrying value of capitalised development costs. The product forms part of the Group's Risk Management and Trading software operating segment. The net carrying value of the product was therefore written down to £300,000, resulting in an impairment charge of £424,000 which was included in the Administrative expenses line of the statement of comprehensive income. The review was carried out as part of the annual review of the carrying value of all intangible assets. This review involved a consideration of the recoverable amount of the asset, being the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. Where the recoverable amount was considered to be lower than the net carrying value, an impairment charge has been applied. The result of the review identified that future cashflows anticipated from the aforementioned asset are lower than had previously been expected and hence the asset has been written down to its recoverable amount by reference to value-in-use calculations. These calculations were based on discounted cash flows using a discount rate of 10%.

5. Accounting adjustments following review by the Conduct Committee of the Financial Reporting Council

The review performed by the FRC identified that the Company's accounting policy for the amortisation of product development costs was not in compliance with IAS 38: 'Intangible Assets' in that development costs meeting the criteria for capitalisation were previously amortised in equal instalments from the end of the month in which the costs were incurred. By contrast, paragraph 97 of IAS38 requires amortisation to begin when the asset is available for use.

In conjunction with the review performed by the FRC, the Board also identified that errors had arisen in the application of the Company's accounting policy for the capitalisation and amortisation of product development costs in the years ended 31 March 2012 and 31 March 2013.

The errors identified by the FRC and the Board are summarised as follows:

· Certain product development costs had been capitalised subsequent to the associated products becoming capable of operating in the manner intended by management. As such, these costs should have been expensed as incurred. The effect of this error is to overstate the cost of capitalised product development costs and understate expenditure by £112,000 and £456,000 in the years ended 31 March 2012 and 31 March 2013 respectively.

· The Company had commenced amortisation of a number of products before they had become capable of operating in the manner intended by management. In addition, as noted above, certain product development costs have been capitalised in error and these incorrectly capitalised costs were themselves subject to amortisation which was hence charged in error. The effect of these errors is to overstate the amortisation charge and understate the net book value of capitalised product development costs by £124,000 and £453,000 in the years ended 31 March 2012 and 31 March 2013 respectively.

The net impact of these errors was to understate the net result by £12,000 in the year ended 31 March 2012 and to overstate the net result by £3,000 in the year ended 31 March 2013. Notwithstanding the fact that these amounts are not significant to the consolidated balance sheet, the consolidated statement of comprehensive income and the consolidated statement of changes in equity, the Company acknowledges that this error affected both the cash flow statement and the note disclosing movements in capitalised product development costs published in the financial statements for those two years.

The aforementioned errors were identified in the year ended 31 March 2014 and, as such, the unaudited comparative information to these interim unaudited financial statements has also required restatement. The effect of this restatement is to increase staff costs by £141,000 and reduce amortisation charges by approximately £552,000. Net cash inflows from operating activities have decreased by £141,000 with a corresponding decrease in net cash outflows from investing activities for the unaudited comparative interim financial statements for the six month period ended 30 September 2013. These adjustments have been reflected in the comparative primary statements of these interim unaudited financial statements and the earnings per share figure has likewise been restated.

With respect to product development costs, the table below sets out the correct information for both years and also includes the information which was previously presented, in order to aid comparison.

Whilst the above errors had no impact on the net cash position of the Company in either year, they resulted in errors in the Cash flow statement as Operating and Investing activities were misstated due to the aforementioned incorrect amortisation and capitalisation of costs respectively. Restated cash flow statements for both years are set out below.

6. Report

Copies of this report will be sent to shareholders and will be available to the public from the Company's head office, 7th Floor, Ludgate House, 245 Blackfriars Road, London, SE1 9UF. The report will also be available to download from the investor relations section of the Company's website www.lombardrisk.com.