23rd Dec 2005 09:50
Lombard Risk Management PLC23 December 2005 Lombard Risk Management plc 23 December 2005 Interim Results for the six months to 30th September 2005 Lombard Risk Management plc ('the Company', 'the Group' or 'Lombard Risk') today announces its interim results for the period ended 30 September 2005. Highlights • Disposal of ValuSpread business for consideration of up to £6m considerably strengthens the Company's ability to execute its strategic plan • Successful acquisition and integration of STB Systems Ltd ('STB Systems' or STB') further strengthens our market position through the additional client base gained and enhances our related product offerings to common customers. Cost savings have been achieved • Profit before tax £ 5.13m (2004: loss £ 0.38m) • Turnover £2.20m (2004: £2.29m) • Operating loss £0.81m (2004: £0.38m) • Net cash and marketable securities £3.71m (2004: £0.94m) • Prospects include strong sales pipeline for CollineTM product SUMMARY The half year was dominated by two significant capital events, firstly the saleof the ValuSpread business to Fitch Ratings Ltd ('Fitch Ratings') for up to£6.0m (of which £5.8m had already been achieved and recognized by the end of theperiod), and secondly the acquisition of STB Systems Ltd for up to £3.0m. Boththese events were very significant, and resulted in the Group ending the periodwith a strong balance sheet and cash position for a company of its size and agood platform for growth. The Company made a Profit Before Tax of £5.13m and a Profit After Tax of £4.83m,in both cases a record result. Client gains were made in the business area of collateral management for theCompany's CollineTM product (rebranded from Firmament Collateral), and thisproduct also recorded a particularly large increase in sales pipeline. The STBSystems business got off to a good start in the Group with new client wins inthe United Kingdom, USA, Asia and New Zealand, and STB Systems looks on track toachieve its earn-out. FINANCIAL Revenue was £2.20m against £2.29m in the comparable period last year and £4.62mfor the full year to March 2005. Profit before tax was £5.13m, made up of anoperating loss of £0.81m balanced by a profit of £5.97m on the sale of theValuSpread business. Cash and marketable securities at the end of the periodwere a total of £3.71m. The sale of the ValuSpread business was at a price that represented more than 10years of contribution from that business, and the Board of Lombard Risk ('theBoard') believes it was a very good deal for the Company. We have a muchstronger balance sheet and cash position as a result of the sale, but theinevitable consequence is that it will take a little time for the rest of theGroup to make up for the operating profits that ValuSpread made. STB Systemsshould go some way towards that in profit terms, and it also has higher revenuesthan ValuSpread did. STB Systems' first month of trading in the Group washowever a particularly good month for contract renewal reasons and should not betaken as representative of the average month. 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 with recurrent revenues from STB Systems, with the definition ofrecurrent revenue being that we continue to receive it unless we lose thecustomer. In addition, the revenue profile remains well dispersed, with nosingle client accounting for more than 4 % of total revenue. SOFTWARE PRODUCTS Oberon continues to make a profit and to provide capital to support thedevelopment of other products. CollineTM, our award winning collateral management software product (rebrandedfrom Firmament Collateral), now has good reference sites in both the banking andenergy sectors, while regulatory pressure and market anxiety following the Refcocrisis have contributed to demand for a solution. A very wide range ofopportunities for this product are being generated in the banking, fundmanagement and energy areas, and we expect this to lead to significant clientgains and revenues during 2006. There will be a combination of a licence, rentaland ASP model for this product, and the split of revenues between thesedifferent models will become clearer over coming months. Firmament Trading has had a pause in revenue growth, as we have switched thedevelopment effort away from primary focus on credit derivatives to providingvaluation capability for a much wider range of instruments including equities,foreign exchange, interest rates and commodities. Until this process is nearercompletion, we are not devoting significant marketing effort to the product. STB Regulatory Reporting software continues to make good progress and remainsthe market leader in the UK regulatory reporting market with 130 out of around500 banks in the UK using the product. There are also reporting solutions forUS, Hong Kong and Singapore regulatory reporting, with other countries underdevelopment. STB Detector, which is an anti money laundering software product, has made somegood client gains with a variety of financial institutions in differentcountries. MANAGED SERVICES AND DATA The continued strong growth in the hedge fund and alternative investment marketshave heightened the awareness of, and demand for, independent valuations by bothasset managers and their investors. In addition, there has been increasingfocus by regulators on independent valuation and the IAS 39 directive on fairvalue accounting for derivatives, which will be significant drivers for theIndependent Valuation Services business. These factors have already beenreflected in a healthy growth in sales leads for the business as well as newcustomers. PERSONNEL The purchase of STB Systems brought an experienced and capable team to theCompany. We are delighted to have welcomed Michael Thomas and his team into theGroup. We were sorry to say good-bye to the ValuSpread team after the purchase by FitchRatings, but we are thankful to them all for their good work. As a data customerof Fitch Ratings following the sale, we look forward to remaining in contactwith the team for some time to come. INVESTMENTS Lombard Risk still holds a stake of 3% (5.6m shares) in its former subsidiaryIDOX plc ('IDOX'), which is quoted on AIM. The Board's position remains thatit will retain or dispose of this holding based on investment considerationsalone. IDOX is an example of a Lombard Risk business that was successfully incubatedand then spun out at an appropriate time. The ValuSpread business sold this yearto Fitch Ratings Ltd is a more recent example. The Company has now built up aproven track record in incubating businesses and crystallizing the capital valueof some of them, and over the next few years it can be anticipated that theCompany will engage in further similar corporate activity if it feels that thisis the best way of creating shareholder value at a particular point in abusiness's development. PROSPECTS The Board believes that the good level of recurrent revenues of the businessoverall, as well as the combined customer base of ourselves and that of STBSystems, provides a sound foundation for growth, both organically and byacquisition. The Company's focus remains on software and services in the areasof derivatives, with risk management and regulation an increasingly strongfocus. The target market remains banks and hedge funds with the energy sector agrowing opportunity. The sales pipeline for the CollineTM product looksespecially promising at the time of writing, although inevitably there is someuncertainty on timing of revenues for individual deals. The Board remainspositive about the growth story and prospects for the Company over the next fewyears. Once again I would like to thank all my colleagues in London and our otheroffices, as well as our advisors, for their hard work and support. J M Wisbey Chairman & CEO 23 December 2005 6 Months to 6 Months to 12 Months to 30-Sep-05 30-Sep-04 31-Mar-05 (unaudited) (unaudited) (audited) Note £ £ £ Turnover - continuing operations 1,794,101 2,290,246 4,623,957 - acquisitions 406,487 - - 2,200,588 2,290,246 4,623,957External charges (89,825) (103,093) (200,758)Gross profit 2,110,763 2,187,153 4,423,199 Staff costs (2,141,267) (1,842,270) (3,910,659)Other operating charges (772,995) (531,881) (1,295,293)Exceptional costs (11,345) (192,480) (297,077) (2,925,607) (2,566,631) (5,503,029) Operating lossContinuing activities before exceptional items and goodwill (952,984) (186,998) (782,753)Operating profit - acquisitions 163,874 - -Goodwill amortisation (14,389) - -Exceptional costs 7 (11,345) (192,480) (297,077)Total operating loss (814,844) (379,478) (1,079,830) Profit on disposal of current asset investments - 49,024 49,024Profit on disposal of business 5,965,126 - - Interest receivable 10,179 774 6,526Interest payable (31,147) (55,279) (109,788) Profit / (loss) on ordinary activities before taxation 5,129,314 (384,959) (1,134,068) Tax on loss on ordinary activities 4 (300,000) - - Profit / (loss) for the period transferred to / (from) reserves 4,829,314 (384,959) (1,134,068) Earnings / (loss) per shareBasic (pence) 6 4.1 (0.5) (1.2)Diluted (pence) 4.0 - - All operations are continuing. At At At 30-Sep-05 30-Sep-04 31-Mar-05 (unaudited) (unaudited) (audited) Note £ £ £ Fixed assetsGoodwill 11 3,439,081 - -Tangible assets 303,145 172,810 285,061 3,742,226 172,810 285,061 Current assetsDebtors due within one year 1,808,897 1,302,359 1,198,451Current asset investment 571,358 571,250 571,358Cash at bank and in hand 3 3,142,079 877,520 327,419 5,522,334 2,751,129 2,097,228 Creditors: Amounts falling due within one year (3,296,887) (2,378,907) (1,306,486) Net current assets 2,225,447 372,222 790,742 Total assets less current liabilities 5,967,673 545,032 1,075,803 Creditors: Amounts falling due after one year (29,623) (212,726) (219,126) Deferred income (1,212,933) (1,411,812) (1,595,336) Net assets / (liabilities) 4,725,117 (1,079,506) (738,659) Capital and reservesCalled up share capital 1,057,509 948,102 1,020,875Share premium 3,019,569 1,398,392 2,415,110Revaluation reserve 170,957 170,957 170,957Other reserves 112,017 118,181 118,648Profit and loss account 365,065 (3,715,138) (4,464,249)Equity shareholders' funds / (deficit) 4,725,117 (1,079,506) (738,659) 6 months to 6 months to 12 months to 30-Sep-05 30-Sep-04 31-Mar-05 (unaudited) (unaudited) (audited) Note £ £ £ Net cash outflow from operating activities 8 (950,390) (680,234) (1,322,630) Returns on investments & servicing of financeInterest received 10,179 774 6,526Interest paid (29,528) (54,728) (108,719)Finance lease interest (1,619) (551) (1,069)Net cash outflow from returns on investments and servicing of finance (20,968) (54,505) (103,262) Taxation - - - Capital expenditure & financial investmentPayments to acquire tangible fixed assets (80,921) (115,556) (281,582)Purchase of current asset investment - (316,000) (316,000)Purchase of subsidiary 11 (1,296,857) - -Net cash balances acquired within the subsidiary 11 31,002 - -Disposal of current asset investment - 393,027 393,024Disposal of tangible fixed asset - - 9,062Disposal of business 2 4,610,049 - -Net cash inflow/(outflow) from capital expenditure and financialinvestment 3,263,273 (38,529) (195,496)FinancingIssue of shares - 992,003 2,081,494Shareholder loans - 275,000 -Capital element of finance lease (7,255) (2,318) (9,574)Net cash (outflow) / inflow from financing (7,255) 1,264,685 2,071,920 Increase in cash 10 2,284,660 491,417 450,532 Notes to the Interim Statement 1 BASIS OF PREPARATION The above financial information has been prepared in accordance with theprincipal accounting policies of the Group as set out in the Group's 2005 annualreport and financial statements. The financial information set out above does not constitute statutory accountsas defined in section 240 of the Companies Act 1985. The figures for the yearended 31 March 2005 have been extracted from the statutory accounts, which havebeen filed with the Registrar of Companies. The auditors' report on thesefinancial statements was unqualified and did not contain a statement undersection 237(2) of the Companies Act 1985. 2 CORPORATE ACTIVITY On 26 August 2005, Lombard Risk Systems Ltd, a wholly owned subsidiary ofLombard Risk Management plc, disposed of its ValuSpread business to FitchRatings Ltd. The maximum consideration payable amounted to £6m in cash plus afurther £540,000 of deferred income. As at 30 September 2005, £5.3m of theconsideration had been received less 10% placed in escrow and expenses paid,with a further £0.5m being recognised in September 2005 and received duringOctober 2005. Included within the expenses arising from the disposal arebonuses, totalling £140,000, payable to two of the directors of Lombard RiskManagement plc. 3 CASH BALANCES HELD IN ESCROW Included within the cash at bank and in hand balance is an amount of £530,000received as part consideration on the disposal of the ValuSpread business andbeing held in an Escrow account. This balance is due to be released to the Groupwithin one year of the interim financial reporting date. Full receipt of thisbalance is subject to certain clauses in the sale agreement not being breachedand the Board is confident that this amount will be received in full. 4 TAXATION The tax provision of £300,000 reflects the fact that the Group has available taxlosses to partially offset the profits generated in the period. The Group has received to date R&D tax credits totalling £570,008. No claim hasbeen submitted for R&D tax credits for the financial years ending 31 March 2004and 31 March 2005. As for all companies that have received these credits, theamounts are subject to potential future HM Revenue & Customs claw back. 5 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 6 months to 6 months to 12 months to 30 Sep-05 30 Sep-04 31 Mar-05 (unaudited) (unaudited) (audited) £ £ £ Profit / (loss) for the period 4,829,314 (384,959) (1,134,068)Currency differences on foreign currency net investments (6,631) (1,012) 237,194Total profits / (losses) recognised since last financial statements 4,822,683 (385,971) (896,874) 6 EARNINGS / (LOSS) PER SHARE The earnings / (loss) per share is calculated by reference to theprofit / (loss) attributed to ordinary shareholders divided by the weightedaverage number of shares in issue during the period, as follows: 6 months to 6 months to 12 months to 30 Sep-05 30 Sep-04 31 Mar-05 (unaudited) (unaudited) (audited) £ £ £ Profit / (loss) for the period 4,829,314 (384,959) (1,134,068)Weighted average number of shares in issue 118,811,032 79,448,441 95,935,032Basic earnings / (loss) per share (pence) 4.1 (0.5) (1.2) Fully diluted number of shares 137,005,086 - -Diluted earnings per share (pence) 4.0 - - 7 EXCEPTIONAL COSTS IN RESPECT OF PURCHASE OF A BUSINESS On 6 February 2002 the Company became a party to an agreement entered into byLombard Risk Systems Ltd to purchase a third party's interest in one of itsoperating divisions, and for the third party to perform future services to thegroup. The total consideration of £1,054,600 was charged to the profit and lossaccount over a three year period from January 2002 to December 2004. £854,600 ofthe consideration was payable in monthly instalments from February 2002 toDecember 2004 with the outstanding being payable in monthly instalments fromJanuary 2005 to December 2006. Interest was charged on the outstanding balanceat 10% per annum. Following the disposal of the ValuSpread business to Fitch Ratings Ltd on 26August 2005, as per the terms of the agreement, £278,044 of the outstandingbalance was paid during October, with a final payment of £79,044 to be paid inApril 2006. For the period ended 30 September 2005, a total of £30,439 (2004: £222,199) wascharged to the profit and loss account. This comprised £Nil gross salary (2004:£132,944) and £11,345 employers NIC (2004: £16,713); interest of £19,094 (2004:£29,719) and other operating costs of £Nil (2004: £42,823). 8 NET CASH OUTFLOW FROM OPERATING ACTIVITIES 6 months to 6 months to 12 months to 30 Sep-05 30 Sep-04 31 Mar-05 (unaudited) (unaudited) (audited) £ £ £ Operating loss (814,844) (379,478) (1,079,830)Depreciation 93,633 36,241 130,327Goodwill amortisation 14,389 - -Decrease / (increase) in debtors 337,881 (388,284) (289,506)Increase / (decrease) in creditors (581,449) 51,287 (83,621)Net cash outflow from operating activities (950,390) (680,234) (1,322,630) 9 ANALYSIS OF CHANGES IN NET FUNDS 6 months to 6 months to 12 months to 30 Sep-05 30 Sep-04 31 Mar-05 (unaudited) (unaudited) (audited) £ £ £ Cash at bank and in hand 2,612,079 877,520 327,419Overdrafts - (509,216) -Debt due after more than one year: Convertible loans - (275,000) -Finance leases (44,135) (9,274) (51,390)Net funds at period end 2,567,944 84,030 276,029 10 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 6 months to 6 months to 12 months to 30 Sep-05 30 Sep-04 31 Mar-05 (unaudited) (unaudited) (audited) £ £ £ Increase in cash during the period 2,284,660 491,417 450,532Cash inflow / (outflow) from financing - (275,000) 9,574Cash inflow / (outflow) from finance leases 7,255 2,318 (49,372)Change in net funds resulting from cash flows 2,291,915 218,735 410,734Net funds / (debt) at 1 April 276,029 (134,705) (134,705)Net funds at period end 2,567,944 84,030 276,029 11 ACQUISITIONS On 31 August 2005 the Group acquired the entire share capital of STB Systems Ltdfor up to £3,000,000. The first instalment was for a consideration of £1,267,322in cash and 7,326,779 newly issued ordinary shares of the Company. There is anadditional maximum consideration of £1,000,000 contingent earn-out shares to beissued as detailed below. The purchase of the share capital of STB Systems Ltdhas been accounted for by the acquisition method of accounting. The assets and liabilities of STB Systems Ltd acquired were as follows: Accounting Provisional Book value adjustment Fair value £ £ £ Tangible assets 75,071 (45,574) 29,497 Debtors 448,132 - 448,132Bank and cash 31,001 - 31,001 Creditors (941,025) - (941,025) Total net liabilities (386,821) (45,574) (432,395) Goodwill 3,453,470 3,021,075 Satisfied by:Cash consideration 1,267,322Share consideration 641,093Deferred contingent consideration 1,000,000Expenses arising from acquisition 112,660 3,021,075 The fair value adjustment made to the assets and liabilities of the Company atthe date of acquisition relates to an accounting policy adjustment to bringdepreciation rates into line with those of the Group. The consideration in deferred contingent earn-out shares is dependent on thedirectors of STB Systems Ltd meeting revenue and profit targets during theperiod from 1 June 2005 to 30 September 2005 and 31 March 2006 and is subject toa maximum payout of £1,000,000 in ordinary shares in the Company. This has beenaccrued for in full. The results of STB Systems Ltd have been consolidated witheffect from 1 September 2005. 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:
Lombard Risk Management