9th Aug 2005 16:32
Lombard Risk Management PLC09 August 2005 9 August 2005 Lombard Risk Management plc Preliminary Results for the Year Ended 31 March 2005 Lombard Risk Management plc, the provider of risk systems and independentvaluation services, has today announced its preliminary results for the year to31 March 2005. Commenting on the results, John Wisbey, Chairman and ChiefExecutive said "Our first year as a quoted company has gone well, and included asignificant investment being made late last year by Putnam Lovell. In addition,the capital raised from the listing has allowed for an increase in the salesteam and a strategic review of the business to take place. As a result thecompany now has a strong base and platform for future growth in its coresoftware and independent valuation businesses." Enquiries: Lombard Risk Management plcJohn WisbeyChairman & CEOTel: 020 7384 5000 Noble & CompanyAlasdair RobinsonDirectorTel: 020 7763 2200 Highlights • Successful listing on the Alternative Investment Market of the London Stock Exchange • £2.35 million raised during the year from new and existing shareholders • Turnover was £4.62 million (2004: £4.53 million). Loss before tax was £1.13 million (2004: £1.21 million) • Strategic review has created strong platform for future growth and development • Strengthened market position through additional product functionality, services and new client wins • Corporate activity to achieve strategic objectives is underway • Post year end agreement to sell ValuSpread business for up to £6 million will greatly strengthen the company's ability to execute its strategic plan Chairman's Statement Summary In trading conditions on par with last year, and with competition remainingstrong, Lombard Risk continued to see consistent demand for its products andservices over the past year. Customer gains were particularly notable in thebusiness areas of Independent Valuation Services and credit derivatives pricing. The Company was successfully floated on the AIM section of the London StockExchange in September 2004 at 8p per share, and in November 2004 received anadditional £1.1 million investment at 9p per share from Putnam Lovell, asubsidiary of National Bank of Canada. Financial Revenue increased to £4.62m against £4.53m for the previous year, with a reducedloss before tax of £1.13m, versus a comparable figure of £1.21m for 2004. Theloss before interest, tax and exceptional items was £0.78m. Revenue was impacted by the timing of several large transactions which failed toclose by the year end, or which were transacted on a rental/subscription basisrather than a licence basis. The sales mix was different from expectations;software rental and data revenues were at a higher level, while licence saleswere at a lower level than expected. Recurrent revenue was at a higher level than expected and contributed over 75%of total revenue. In addition, the revenue profile remained well dispersed,with no single client accounting for more than 6% of total revenue. Costs were increased post IPO by the addition of several new members of staff insales and marketing together with ongoing listing costs and the addition of twonon-executive directors. There is a growing sales pipeline owing to the salesteam's efforts, but it has taken longer than expected for the new team to reachfull productivity. Oberon, the trading and risk management system, remained profitable for thesixteenth consecutive year and made two key new customer wins during the year,while Firmament's revenue contribution has increased, and the product continuesto be expanded and enhanced in the areas of credit trading and collateralmanagement. The Independent Valuation Service business continues to see demand growth as themarketplace increasingly recognises the importance of independent valuations,and our ValuSpread data business is benefiting from continued growth in thevolume of credit derivatives traded. The Company ended the year with cash and marketable securities of £0.9m. Inaddition the Company has the ability to reclaim R&D tax credits totallingseveral hundred thousand pounds; however the Board believes that, as a result oftrading and corporate activity, it may be able to make use of a large proportionof its tax losses in the next financial period, and has consequently for thefirst time in four years not applied to surrender any of its tax losses againstpayment for R&D tax credits. Software Products Oberon continues to provide capital to support the development of otherproducts, as well as gaining new customers. Work has continued to make Oberon avery open system using our OBI utility. Functionally the product has made goodprogress with new pricing models and support for additional instruments. AllOberon customers are now using Oberon 5, thus streamlining the product supportfunction. Firmament, the Company's latest software platform for trading and riskmanagement, continues to gain ground and has benefited particularly this yearfrom a new development partnership with Banca IMI in Milan, Italy. This is forthe further enhancement of Firmament Collateral, the software platform forcollateral trading and risk management. Client wins for Firmament Credit Tradinghave included hedge funds and a prominent Fund Administrator. 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. The growth in the credit derivatives market has continued at over 40% per annum,and the British Bankers' Association estimated that the total market size asmeasured by notional amount had reached US$5.5 trillion by the end of 2004. Thevolume of instruments traded has also continued to rise, and this has beenreflected in the significant growth in credits handled by the ValuSpread databusiness. Personnel We welcomed two very experienced directors to the Board in the last year, BrianCrowe and Dan Kochav, both of whom are current practitioners in very relevantbusinesses. Brian Crowe joined at the time of our IPO, and is Deputy ChiefExecutive of Royal Bank of Scotland's Corporate Banking and Financial Marketsdivision. Dan Kochav joined our Board following the investment by Putnam Lovelland is Managing Director of Alternative Investments there, having previouslybeen a Managing Director of Toronto Dominion Bank. This association with PutnamLovell and its network of contacts has already brought significant additionalbenefits to the Company, particularly as it seeks to expand its North Americancustomer base and activities. At the beginning of March Ian Hopkins, who had previously founded and headed upthe ValuSpread business during a six year tenure with the Company, rejoined asManaging Director of ValuSpread after a two year absence. Investments Lombard Risk still holds a stake of 3% (5.6 million shares) in its formersubsidiary IDOX plc, 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 business bought by Lombard Risk, successfully incubatedand then spun out at an appropriate time. This is a model that the Board feelscomfortable with, and over the next few years it can be anticipated that theCompany will engage in further similar corporate activity. Prospects At the time of writing, the Company had just agreed to sell its ValuSpreadbusiness. This disposal will substantially improve the balance sheet of theCompany and create a very strong cash position for a company of our size. Itwill also provide additional capability to execute on the Company's strategicplan to be a specialist supplier of risk and valuation products and services tothe financial services market place. The Board believes that the high level of recurrent revenues of the businessoverall provides a sound foundation for growth. The Board is confident thatmarket demand in our focus areas of credit derivatives and hedge fund managementwill continue to grow, as will the area of independent valuations. The Boardremains positive about the growth story and prospects for the Company over thenext few years. The year in which we made the transition to quoted status was a significant yearfor the Company. In addition owing to our former head office building beingredeveloped by our landlords, the company had to move office in October 2004.Inevitably both the IPO and the office move meant that many of our team had togo the extra mile over and above their normal jobs, and I would like to thankall my colleagues in London and our other offices, as well as our advisors, fortheir hard work and support. John WisbeyChairman and CEO9 August 2005 The preliminary announcement was approved by the Board on 9 August 2005. Consolidated Profit & Loss Account 2005 2004 Note £ £ Turnover 4,623,957 4,525,652External charges (200,758) (241,170) Gross profit 4,423,199 4,284,482 Staff costs (3,910,659) (3,636,148)Other operating charges (1,295,293) (1,321,319)Exceptional costs 2 (297,077) (384,975) (5,503,029) (5,342,442) Operating lossBefore exceptional items (782,753) (672,985)Exceptional costs 2 (297,077) (384,975) Total operating loss (1,079,830) (1,057,960) Profit on disposal of current asset investment 49,024 2,340 Interest receivable 6,526 4,892Interest payable (109,788) (157,139) Loss on ordinary activities before taxation (1,134,068) (1,207,867) Tax on loss on ordinary activities 3 - 460,008Non equity appropriation 4 - (21,488) Loss for the year transferred from reserves (1,134,068) (769,347) Loss per share Basic and diluted (pence) 5 (1.2) (0.9) All operations are continuing Consolidated Balance Sheet 2005 2004 £ £ Fixed assetsTangible assets 285,061 93,496 Current assetsDebtors due within one year 1,198,451 915,087Current asset investment 571,358 599,250Cash at bank and in hand 327,419 72,887 2,097,228 1,587,224 Creditors: Amounts falling due within one year (1,306,486) (1,509,542) Net current assets 790,742 77,682 Total assets less current liabilities 1,075,803 171,178 Creditors: Amounts falling due after one year (219,126) (355,937) Deferred income (1,595,336) (1,500,781) Net liabilities (738,659) (1,685,540) Capital and reservesCalled up share capital 1,020,875 867,881Share premium 2,415,110 486,610Revaluation reserve 170,957 408,151Other reserves 118,648 119,193Profit and loss account (4,464,249) (3,567,375)Shareholders' deficit (738,659) (1,685,540) Equity shareholders' deficit (738,659) (2,417,027)Non-equity shareholders' funds - 731,487Shareholders' deficit (738,659) (1,685,540) Consolidated Cash Flow Statement 2005 2004 Note £ £ Net cash outflow from operating activities 7 (1,322,630) (410,861) Returns on investments & servicing of financeInterest received 6,526 4,892Interest paid (108,719) (156,038)Finance lease interest (1,069) (1,101) Net cash outflow from returns on investments and servicing of finance (103,262) (152,247) Taxation - 570,008 Capital expenditure & financial investmentPayments to acquire tangible fixed assets (281,582) (95,782)Purchase of current asset investment (316,000) -Disposal of current asset investment 393,024 1,475,735Disposal of tangible fixed asset 9,062 - Net cash (outflow) / inflow from capital expenditure and financial investment (195,496) 1,379,953 FinancingIssue of shares 2,081,494 -Capital element of finance lease (9,574) (4,636) Net cash inflow / (outflow) from financing 2,071,920 (4,636) Increase in cash 8 450,532 1,382,217 Consolidated statement of total recognised gains and losses 2005 2004 £ £ Loss for the year (1,134,068) (769,347)Currency differences on foreign currency net investments (545) (512) Total losses recognised since last financial statements (1,134,613) (769,859) Note of historical cost profits and losses 2005 2004 £ £ Reported loss on ordinary activities before taxation (1,134,068) (1,207,867)Realisation of revaluation gains of previous years 237,194 1,003,510Historical cost loss on ordinary activities before taxation (896,874) (204,357) Notes to the Preliminary announcement 1 ACCOUNTING POLICIES (a). Basis of preparation The principal accounting policies of the Group are set out in the Group'sfinancial statements for the year ended 31 March 2005. The policies haveremained unchanged from the previous financial statements. (b). Going concern The directors have formally considered the ability of the group to continue itsactivities in light of the net liabilities of £738,659 in the balance sheet at31st March 2005 and the losses and cash outflows in the period then ended. The directors have prepared forecasts for the period to September 2006 and aresatisfied that the group will continue to work within its available facilities.The group currently has an agreed banking facility which is due for renewal inDecember 2005. The directors have not started discussion with the bank inrespect of the renewal of this facility but have no reason to believe it willnot be renewed. The directors furthermore take comfort from the fact that the company owns twoestablished cash generative businesses each of which has a value considerablyhigher than the net liability position, a remaining stake in IDOX plc with amarket value at the end of July of approximately £600,000 and that the netliability position is a direct consequence of the company's policy of writingoff all investment in software research and development as and when incurred. 2 EXCEPTIONAL COSTS IN RESPECT OF PURCHASE OF A BUSINESS INTEREST 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 which is an important business activity of the Group, andfor the third party to perform future services to the Group. The total consideration of £1,054,600 was charged to the profit and loss accountin instalments between 1 January 2002 and 31 December 2004, being the periodthat the Group received benefit from the agreement. £854,600 of the consideration was paid in monthly instalments from 6 February2002 to 31 December 2004 and £200,000 is payable in monthly instalments from 31December 2004 to 31 December 2006. The differences between the charge to theprofit and loss account over three years and the payments over five years areaccounted for as a deferred creditor, or deferred debtor as appropriate. Interest is charged on the outstanding balance at 10% per annum. For the year ended 31 March 2005, a total of £368,481 (2004: £459,211) wascharged to the profit and loss account. This comprised £199,416 gross salary(2004: £265,888) and £33,427 employers NIC (2004: £33,442); interest of £71,404(2004: £74,236) and other operating costs of £64,234 (2004: £85,645). The Company has guaranteed the performance of the agreement by Lombard RiskSystems Ltd. 3 TAX ON LOSS ON ORDINARY ACTIVITIES There is no charge to tax for the year (2004: £nil) because of the availabilityof losses within the Group. The Company has received to date R&D tax credits of £570,008. As for allcompanies that have received these credits, the amounts are subject to potentialfuture HM Revenue & Customs clawback. 2005 2004 £ £ Adjustment in respect of prior periods - R&D tax credit - (460,008) The tax assessed for the period is the standard rate of corporation tax in theUK of 30% (2004: 30%). The differences are explained as follows: 2005 2004 £ £ Loss on ordinary activities before tax (1,134,068) (1,207,867) Loss on ordinary activities multiplied by standard rate of corporation (340,220) (362,360)tax in the UK of 30% Effect of:Capital allowances for the period in excess of depreciation (38,145) (26,237)Other short term timing differences 1,135 27,395Increase / (Utilisation) of trading losses 361,398 -Expenses not deductible for tax purposes 15,832 30,669Adjustments to tax charge in respect of previous periods - (460,008)Losses available to carry forward - 330,533Current tax charge for the period - (460,008) The directors have not recognised the deferred tax amount of £2,690,909 (2004:£1,650,026) arising on trading losses carried forward. 4 NON-EQUITY APPROPRIATION 2005 2004 £ £ A Preference appropriation at 6% from 1 April 2003 - 11,925A Preference appropriation at 8% from 1 January 2004 - 5,300B Preference appropriation at 6% from 1 July 2003 - 4,263 - 21,488 5 LOSS PER SHARE The calculation of the loss per share is based on the loss for the financialyear after taxation of £1,134,068 (2004: loss £747,859) and on the weightedaverage of 95,935,032 (2004: 78,962,738) ordinary shares in issue during theyear. The options outstanding at 31 March 2005 and 31 March 2004 are consideredto be non-dilutive in that their conversion into ordinary shares would notincrease the net loss per share. Consequently, there is no diluted earnings pershare to report for either year. 6 RECONCILIATION OF MOVEMENT IN CONSOLIDATED SHAREHOLDERS' DEFICIT 2005 2004 £ £ Loss for the financial year (1,134,068) (769,347)Foreign exchange reserve (545) (512)Issue of 10p Ordinary shares 2,097 2,000Issue of 0.5p new Ordinary shares 150,897 -Premium on new Ordinary shares 2,210,764 38,000Share issue costs (282,264) -Non equity appropriation - 21,488 946,881 (708,371)Shareholders' deficit at 1 April (1,685,540) (977,169)Shareholders' deficit at 31 March (738,659) (1,685,540) 7 NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2005 2004 £ £ Operating loss (1,079,830) (1,057,960)Depreciation 130,327 123,146Increase in debtors (289,506) (29,419)(Decrease) / increase in creditors (83,621) 553,372Net cash outflow from operating activities (1,322,630) (410,861) 8 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS / (DEBT) 2005 2004 £ Increase in cash in the year 450,532 1,382,217Cash outflow from finance leases 9,574 4,636Inception of finance leases (49,372) -Change in net debt resulting from cashflows 410,734 1,386,853Net debt at 1 April (134,705) (1,521,558)Net funds / (debt) at 31 March 276,029 (134,705) 9 ANALYSIS OF CHANGES IN NET DEBT/(FUNDS) 1 Apr 04 Cash flow Non cash 31 Mar 05 movements £ £ £ £ Cash at bank and in hand 72,887 254,532 - 327,419Overdrafts (196,000) 196,000 - - (123,113) 450,532 - 327,419Finance leases (11,592) 9,574 (49,372) (51,390) (134,705) 460,106 (49,372) 276,029 10 PUBLICATION OF NON STATUTORY ACCOUNTS The financial information set out in this announcement does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. The consolidated balance sheet, the consolidated profit and loss account, theconsolidated cash flow statement and associated notes for the year ended 31March 2005 have been extracted from the group's statutory accounts upon whichthe auditor's opinion is unqualified and does not contain any statement undersection 237 of the Companies Act 1985. The statutory accounts for the year ended31 March 2005 will be filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Lombard Risk Management