23rd Nov 2006 07:30
Lombard Risk Management PLC23 November 2006 Lombard Risk Management plc 23 November 2006 Interim Results for the six months to 30th September 2006 Lombard Risk Management plc (the 'Company', the 'Group' or 'Lombard Risk') today announces its interim results for the period ended 30 September 2006 Highlights • Significant forward momentum with revenue on track for c. 50% p.a. like for like growth in full year • 13 major new deals concluded in period each worth in excess of £100,000 in their first two years • Software businesses back to near breakeven in first half and look set for overall profitability in full year • Shanghai operation now well established and cost savings made in London • Turnover £3.46m (2005: £2.20m). • Operating loss £1.11m (2005: £0.81m) made up of o £0.10m loss in software businesses (including £0.02m FRS20 charge from share options awarded to employees) o £0.59m investment in independent valuation business o £0.33m start up costs of Shanghai operation o £0.09m goodwill amortisation Summary The half year demonstrated considerable forward momentum in our business.Thirteen new deals were concluded in the period with a value of more than£100,000 each, and while the revenue for several of these will be mostlyrecognized in the second half, all the indications are that we are in line foraround 50% organic revenue growth for the full year on a like for like basis.There is considerable and growing demand for our Colline(R) collateralmanagement software and our STB-Reporter regulatory reporting software product,while our Oberon(R) valuation and risk management product also put on a verygood performance. Revenue for the first half was £3.46m, and we appear to bewell on track to meet the market's revenue expectation for the full year. Around£6.7m of revenue is already assured for the full year even if we obtain nofurther clients between now and the end of the financial year against thethirteen sizeable deals obtained in the first six months as well as severalother smaller ones. Our software businesses have almost returned to breakeven for the period, if thestart up costs of the Shanghai development centre are excluded. If the level ofnew business in the first half continues in the second half, our softwarebusinesses will be profitable for the year overall with a very good base for thenext financial year. This is a considerable achievement given that we had almost£1m p.a. of contribution to replace in the Lombard Risk Systems softwarebusiness as a result of the sale of the ValuSpread business to Fitch Ratings inAugust 2005. Overall the firm made an operating loss of £1.11m for the period on revenues of£3.46m. Of that loss, £0.59m was attributable to further investment in theIndependent Valuation business, all of which has been expensed. We have alreadypublicly announced that we are intending to attract outside investment for theIndependent Valuation business, and at the time of writing good progress hasbeen made with identifying potential investors. Of the remaining loss of £0.52m,£0.09m was goodwill amortisation, £0.33m start up costs of the Shanghaioperation and the loss of the software businesses was £0.10m, which included£0.02m for share options awarded to employees charged to P&L for the first timeas required by the newly applicable FRS 20. As stated above, it seems highlylikely that the software businesses will break through to operatingprofitability in the next 6 months with enough profit to cover the costs of theShanghai operation for the full year. Financial Revenue increased to £3.46m against £2.20m in the comparable period last year.Loss before tax was £1.09m. Cash and marketable securities (at market value) atthe end of the period were £0.90m. Recurrent revenue has historically been a high proportion of revenues at LombardRisk. We have more than replaced the recurrent revenues lost with the sale ofValuSpread in 2005 with recurrent revenues from STB Systems, with the definitionof such revenue being that we continue to receive it unless we lose thecustomer. Recurrent annual revenues for the Group are running at over £4m. Inaddition, the revenue profile remains well dispersed, with no single client lastyear accounting for more than 5% of total revenue. Valuation and Risk Management Software Products Oberon, the trading and risk management system, saw two significant contractwins in the period and remained our most profitable product. Oberon continues toprovide capital to support the development of other products. Work has continuedto make Oberon a very open system using our OBI utility, and this work is nowbeing carried out largely in our Shanghai operation. Functionally the producthas made good progress with new pricing models and support for additionalinstruments such as inflation derivatives. Colline, our software for collateral management, has enjoyed a good half yearwith six contract wins in as many months, and a large sales pipeline behindthose wins which is very promising for the rest of the financial year. Clientwins for Colline have included banks, asset management firms, hedge funds andenergy companies. An ASP service for Colline has also successfully gone live.Drivers for Colline's growth include the need for many entities to free upcredit lines, reduction of economic capital and Basel II. We obtained a ratingfor the product in Risk Magazine. Regulatory and Compliance Software Products The Group's regulatory and compliance software business STB Systems hascontinued to make good progress with a growing pipeline ahead of the Basel IIregulatory changes and important contract wins in other countries. Significantcontracts were signed with Standard Bank of South Africa and with AIB, while UKregulation changes gave us good opportunities in the UK with new deals signedwith Winterflood Securities and Teather and Greenwood among others. Basel II isa very important driver for our growth in this area over the next year. STB Systems is the market leader for U.K. Bank Regulatory Reporting withapproximately 150 of 350 banks in the U.K. using the STB-Reporter product forregulatory reporting to the FSA. We believe that the high average level ofcustomer satisfaction offers an excellent opportunity for the Group to expandits business with many of these clients. The firm's ability to offer global solutions has been greatly enhanced throughit now having regulatory offerings available or under production for severalEMEA and Asian countries as well as the United States. In addition, the AMLproduct STB-Detector has seen good revenue growth in several countries, butparticularly in the United States. Independent Valuations The Group's Independent Valuation business, which from 2005 has operated as aseparate subsidiary, is progressing well with a significant contract with alarge international banking group, as well as other clients especially in thefield of structured credit valuations. There are a number of other goodopportunities in prospect. The Board believes there is a clear and importantopportunity, in conjunction with partners, to position this business to providean industry solution for independent valuations. This transition will require ahigh level of additional investment and the Board believes it is prudent andappropriate that the Independent Valuation subsidiary attracts third partyinvestors to assist with the funding of this further expansion rather than forthe Group itself to fund all that investment. A number of interested partieshave been identified, although there is no certainty that these discussions willresult in actual investment. Personnel The last six months have seen a significant build up in our Shanghai operation,with a headcount there now of around 28. We have been very pleased with thequality of the people that we have recruited so far. Although costs rose in thelast six months owing to the establishment of our Shanghai operation and aninitial duplication of costs between London and Shanghai, it has now beenpossible to make some consequent reductions in costs in London, and the outlookfor costs is now a very favourable one of cost containment as a progressivemigration of software development and other functions to Shanghai takes place. Investments Lombard Risk still holds a stake of 3% (5.6 million shares) in its formersubsidiary IDOX plc, which is quoted on AIM. Although that company has had adifficult past few months with two profit warnings and the departure of itsChief Executive, the board takes comfort from IDOX's strong cash position andcustomer base among local authorities and believes it has sound fundamentals.The Board's position is that it will continue to review the level of thisholding based on investment considerations alone. Prospects The Board believes that the high level of recurrent revenues of the businessoverall and the product positioning of Lombard Risk provides a strong foundationfor growth of the Group's software revenues. The Board is confident that marketdemand in our focus areas of collateral management, derivatives, regulation andcompliance will continue to grow, as will the area of independent valuations.Backed up by the fast growth experienced in the first six months of the newfinancial year including deals done but where revenue has not yet beenrecognized, the Board is very positive on revenue growth for FY 2007 and remainspositive about the prospects for the Group over the next few years - subject tothe Board's normal caveat that there will inevitably be some volatility ofearnings arising from the exact timing of the Group's larger software licencedeals. The Shanghai operation should allow revenues to grow much faster than costs fromnow on. The Board believes that Shanghai's re-emergence as a major financialcentre also presents Lombard Risk with significant local revenue opportunitiesover coming years in addition to the cost benefits of offshore development. With our revenues for the full year expected to grow at around 50% p.a. on alike for like basis, our hope and expectation is that the company's share pricewill be a candidate for significant re-rating once we demonstrate a return tosustained profitability. There is of course still work to do before we reachthat point, and we also want to complete the spin-out of the independentvaluation business during that period. Our team and I are confident thatprofitability for the software business is now achievable in the next fewmonths. I would like to thank all my colleagues, as well as our advisors, for their hardwork and support. J M Wisbey Chairman & CEO 23 November 2006 The interim report was approved by the Board of Directors on 22 November 2006 Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2006 which comprises the consolidated profitand loss account, consolidated balance sheet, consolidated cash flow statementand the related notes 1 to 8. We have read the other information contained inthe interim report which comprises only the Chairman's Statement and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Our responsibilities do not extend to any otherinformation. This report is made solely to the company's members, as a body, in accordancewith guidance contained in APB Bulletin 1999/4 "Review of Interim FinancialInformation". Our review work has been undertaken so that we might state to thecompany's members those matters we are required to state to them in a reviewreport and for no other purpose. To the fullest extent permitted by law, we donot accept or assume responsibility to anyone other than the company and thecompany's members as a body, for our review work, for this report, or for theconclusion we have formed. Directors' responsibilities The interim report including the financial information contained therein is theresponsibility of, and has been approved by, the directors. They are responsiblefor preparing the interim report and ensuring that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of Interim Financial Information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards of Auditing (UK & Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2006. GRANT THORNTON UK LLPREGISTERED AUDITORSCHARTERED ACCOUNTANTSLONDON 23 November 2006 The maintenance and integrity of the Lombard Risk Management plc website is theresponsibility of the directors: the interim review does not involveconsideration of these matters and, accordingly, the company's reportingaccountants accept no responsibility for any changes that may have occurred tothe interim report since it was initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination ofthe interim report differ from legislation in other jurisdictions. 6 Months to 6 Months to 12 Months to 30-Sep-06 30-Sep-05 31-Mar-06 (unaudited) (unaudited) (audited) Note £ £ £ Turnover 3,459,212 2,200,588 4,701,573External charges (20,752) (89,825) (102,379)Gross profit 3,438,460 2,110,763 4,599,194 Staff costs (3,139,836) (2,141,267) (5,113,546)Other operating charges (1,407,453) (772,995) (2,218,190)Exceptional costs - (11,345) (21,469) (4,547,289) (2,925,607) (7,353,205) Operating lossContinuing activities before exceptional items and goodwill (1,014,695) (789,110) (2,624,028)Goodwill amortisation (94,134) (14,389) (108,514)Exceptional costs - (11,345) (21,469)Total operating loss (1,108,829) (814,844) (2,754,011) Profit on disposal of business - 5,965,126 5,971,447 Interest receivable 20,897 10,179 43,296Interest payable (1,232) (31,147) (38,114) (Loss) / profit on ordinary activities before taxation (1,089,164) 5,129,314 3,222,618 Tax on (loss) / profit on ordinary activities 2 (1,167) (300,000) - (Loss) / profit for the period transferred (from) / to reserves (1,090,331) 4,829,314 3,222,618 (Loss) / earnings per share Basic (pence) 4 (0.8) 4.1 2.6Diluted (pence) (0.8) 3.9 2.5 All operations are continuing. At At At 30-Sep-06 30-Sep-05 31-Mar-06 (unaudited) (unaudited) (audited) Note £ £ £ Fixed assetsGoodwill 3,538,546 3,439,081 3,712,680Tangible assets 335,137 303,145 344,387 3,873,683 3,742,226 4,057,067 Current assetsDebtors due within one year Trade debtors 1,202,186 983,224 789,470 Other debtors 369,734 755,285 336,554Debtors due after one year 86,033 70,388 77,898Current asset investment 3 571,358 571,358 571,358Cash at bank and in hand 560,907 3,142,079 1,723,035 2,790,218 5,522,334 3,498,315 Creditors: Amounts falling due within one year (1,629,260) (3,296,887) (1,952,725) Net current assets 1,160,958 2,225,447 1,545,590 Total assets less current liabilities 5,034,641 5,967,673 5,602,657 Creditors: Amounts falling due after one year (19,749) (29,623) (24,686) Deferred income (2,080,477) (1,212,933) (1,999,996) Net assets 2,934,415 4,725,117 3,577,975 Capital and reservesCalled up share capital 1,103,510 1,057,509 1,082,510Share premium 2,415,110 3,019,569 2,415,110Revaluation reserve 170,957 170,957 170,957Other reserves 1,576,692 112,017 1,151,029Profit and loss account (2,331,854) 365,065 (1,241,631)Shareholders' funds 2,934,415 4,725,117 3,577,975 6 months to 6 months to 12 months to 30-Sep-06 30-Sep-05 31-Mar-06 (unaudited) (unaudited) (audited) Note £ £ £ Net cash outflow from operating activities 5 (1,023,215) (950,390) (2,580,974) Returns on investments & servicing of financeInterest received 20,897 10,179 43,296Interest paid (163) (29,528) (35,976)Finance lease interest (1,069) (1,619) (2,138)Net cash inflow / (outflow) from returns on investments and servicing 19,665 (20,968) 5,182of finance Taxation (1,167) - - Capital expenditure & financial investmentPayments to acquire tangible fixed assets (150,156) (80,921) (259,604)Purchase of subsidiary - (1,296,857) (1,382,033)Net cash balances acquired within the subsidiary - 31,002 31,002Disposal of business - 4,610,049 5,596,554Net cash (outflow) / inflow from capital expenditure and financialinvestment (150,156) 3,263,273 3,985,919 FinancingCapital element of finance lease (7,255) (7,255) (14,511)Net cash outflow from financing (7,255) (7,255) (14,511) (Decrease) / increase in cash 7 (1,162,128) 2,284,660 1,395,616 Notes to the Interim Statement 1 BASIS OF PREPARATION The interim financial information has been prepared in accordance with theprincipal accounting policies of the Group as set out in the Group's 2006 annualreport and financial statements. The financial information set out in this report does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. The figures forthe year ended 31 March 2006 have been extracted from the statutory accounts,which have been filed with the Registrar of Companies. The auditors' report onthese financial statements was unqualified and did not contain a statement undersection 237(2) of the Companies Act 1985. The interim financial statements have been reviewed by the company's auditors. Acopy of the auditor's review report is attached to the interim report. Changes in accounting policy Share based payments The company operates equity-settled share option schemes under which optionshave been granted to employees (including directors). The group has takenadvantage of the transitional provisions of FRS20 and has applied FRS20 only tooptions which vest after 31 March 2006. The fair value of share options granted is recognised as employee benefit costwith a corresponding increase in the share-based payment reserve. The fair valueis measured at grant date and spread over the period during which the employeesbecome unconditionally entitled to the options. The fair value of the optionsgranted is measured using a Black Scholes model, taking into account the termsand conditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vest. The effect of the change in accounting policy is a charge to the profit and lossaccount of £18,854 and the creation of a share options reserve in the balancesheet. 2 TAXATION The Group has received to date R&D tax credits totalling £570,008 for financialyears ending 31 March 2002 and 31 March 2003. The Group has submitted claims forR&D tax credits for the financial years ending 31 March 2004 and 31 March 2005totalling £509,037. As for all companies that have received these credits, theamounts are subject to potential future HM Revenue & Customs claw back. 3 current asset investment All current asset investments relate to the Company's investment in IDOX plc, anAIM listed UK company. The stock exchange value of the Group's holding in IDOXplc at 30 September 2006 was £343,095, compared to a book value of £571,358.Subsequent to the period end the value of the share price has fallen. The marketvalue at 15 November 2006 was £245,068. This fall in market value has not beenreflected in the interim financial statements on the grounds that the directorsbelieve it to be temporary. 4 (LOSS) / EARNINGS PER SHARE The (loss) / earnings per share is calculated by reference to the (loss) /profit attributed to ordinary shareholders divided by the weighted averagenumber of shares in issue during the period, as follows: 6 months to 6 months to 12 months to 30 Sep-06 30 Sep-05 31 Mar-06 (unaudited) (unaudited) (audited) £ £ £ (Loss) / profit for the period (1,090,331) 4,829,314 3,222,618Weighted average number of shares in issue 130,650,364 118,811,032 123,840,622Basic (loss) / earnings per share (pence) (0.8) 4.1 2.6 Fully diluted number of shares 130,650,364 123,811,032 128,840,622Diluted (loss) / earnings per share (pence) (0.8) 3.9 2.5 5 NET CASH OUTFLOW FROM OPERATING ACTIVITIES 6 months to 6 months to 12 months to 30 Sep-06 30 Sep-05 31 Mar-06 (unaudited) (unaudited) (audited) £ £ £ Operating loss (1,108,829) (814,844) (2,754,011)Depreciation 159,406 93,633 229,775Goodwill amortisation 94,134 14,389 108,514Share based payment expense 18,854 - -(Increase) / decrease in debtors (454,032) 337,881 442,661Increase / (decrease) in creditors 267,252 (581,449) (607,913)Net cash outflow from operating activities (1,023,215) (950,390) (2,580,974) 6 ANALYSIS OF CHANGES IN NET FUNDS 6 months to 6 months to 12 months to 30 Sep-06 30 Sep-05 31 Mar-06 (unaudited) (unaudited) (audited) £ £ £ Cash at bank and in hand 560,907 2,612,079 1,723,035Finance leases (29,624) (44,135) (36,879)Net funds at period end 531,283 2,567,944 1,686,156 7 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 6 months to 6 months to 12 months to 30 Sep-06 30 Sep-05 31 Mar-06 (unaudited) (unaudited) (audited) £ £ £ (Decrease) / increase in cash during the period (1,162,128) 2,284,660 1,395,616Cash outflow from finance leases 7,255 7,255 14,511Change in net funds resulting from cash flows (1,154,873) 2,291,915 1,410,127Net funds at 1 April 1,686,156 276,029 276,029Net funds at period end 531,283 2,567,944 1,686,156 8 SHARE CAPITAL On 26 September 2006, a total of 4,200,000 new ordinary 0.5p shares were issuedto the vendors of STB Systems Limited constituting the second and final trancheof earn-out consideration in respect of the acquisition of STB Systems Ltd. Thedifference between the total consideration of £420,000 and the total nominalvalue of £21,000 has been credited to the merger reserve (£399,000). The newordinary shares rank pari passu with the existing ordinary shares of the Companyand represent 3.12 per cent of the enlarged issued share capital of the Companyat that time. The new shares started trading on 29 September 2006 on the AIMMarket of the London Stock Exchange. Enquiries: Lombard Risk Management plc John Wisbeywww.lombardrisk.com Chairman and CEO Tel: 020 7384 5000 Noble & Company Limited Matthew Hall(Lombard Risk's NOMAD) Director Tel: 020 7763 2200 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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