4th Jul 2006 07:53
Lombard Risk Management PLC04 July 2006 Preliminary Results for the Year Ended 31 March 2006 Lombard Risk Management plc4 July 2006 Lombard Risk Management plc, a leading risk management, valuation and regulatoryreporting software company, has today announced its preliminary results for theyear to 31 March 2006. Commenting on the results, John Wisbey, Chairman andChief Executive said "This was a transformational year which saw us lay theground for a real advance in the business. Revenues in the first 3 months of thenew financial year have been stronger than any other quarter in the company'shistory with the Colline collateral management software and the STB-Reporterregulatory reporting software making particularly strong headway" Highlights • Year of significant advancement including: - Heavy investment in the Shanghai operation and in R&D for Colline andother products - Acquisition of STB Systems Ltd in August 2005 which brought marketleadership for UK bank regulatory reporting software. • Excellent start to the 2007 financial year with record quarterlyrevenues of approximately £2.0m achieved in the June quarter • Results for the 2006 financial year in line with marketexpectations based on announcement of 24 April 2006 - Profit before tax £3.22m, following the gain of £5.97m on ValuSpreaddisposal (2005: loss £1.13m) - Turnover up 1.7% to £4.70m (2005: £4.62m) - Net cash and marketable securities £2.3m (2005: £0.9m) • Strong outlook for revenues and promising outlook for cost savingsas the Shanghai operation moves forward. Enquiries: Lombard Risk Management plc:John Wisbey, Chairman and CEOT: +44 (0)20 7384 5000E: [email protected] Noble & Company Ltd (Nominated Advisor) :Matthew Hall, DirectorTel: +44 (0)20 7763 2200 Summary The year was one of laying the ground for a real advance in our business. Majorinvestments, all expensed, were made in the second half of the year in theestablishment of the new Shanghai operation and in R&D for Colline and otherproducts. The acquisition of STB Systems in August 2005 for around £3.0m broughtLombard Risk market leadership for UK bank regulatory reporting software, andrelationships with 140 out of 350 banks in the UK. The positive result of theinvestment in Colline was already starting to be apparent at the end of thefinancial year, while the cost and revenue benefits of investment in theShanghai operation should progressively become apparent during the 2007 and 2008financial years. The sale of the ValuSpread business to Fitch Ratings Ltd for up to £6.0m (ofwhich £5.9m had been recognized by the end of the period) was a significantevent. This ensured that despite the heavy investment in the future the Groupwas able to end the period with a relatively strong balance sheet and cashposition for a company of its size, as well as having an excellent platform forgrowth. The Company made a Profit After Tax of £3.22m, a record result. Towards the end of the financial year and since then the group has traded verystrongly with particularly good performance by the Colline collateral managementproduct and the STB-Reporter regulatory reporting product. In the strongeststart yet to a new financial year since the Company was founded, the Company hasachieved June quarter revenues of just under £2m. Financial Revenue increased to £4.70m against £4.62m in the comparable period last year.Profit before tax was £3.22m, made up of an operating loss of £2.75m balanced bya profit of £5.97m on the sale of the ValuSpread business. Cash and marketablesecurities at the end of the period were a total of £2.29m. The sale of the ValuSpread business, in August 2005, was at a price thatrepresented more than 10 years of contribution from that business, and the Boardbelieves it was a very good deal for the Company. The downside of that is ofcourse that the Group no longer enjoys either the contribution it had fromValuSpread nor the ability to charge various shared resources to ValuSpread. Theoperating result was affected by the fact that it has taken a little while forthe rest of the business to make up for ValuSpread's positive results. STBSystems should go some way towards that in profit terms, and it also has higherrevenues than ValuSpread did. 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 of suchrevenue being that we continue to receive it unless we lose the customer.Recurrent revenues for the Group are running at around £4m. In addition, therevenue profile remains well dispersed, with no single client last yearaccounting for more than 5 % of total revenue. Valuation and Risk Management Software Products Oberon, the trading and risk management system, remained profitable for theseventeenth consecutive year. Oberon continues to provide capital to support thedevelopment of other products, and has gained some new customers although it haslost others. Work has continued to make Oberon a very open system using our OBIutility, and this work is now being carried out largely in our Shanghaioperation. Functionally the product has made good progress with new pricingmodels and support for additional instruments. Colline, our software for collateral management, has enjoyed several contractwins and has seen a particularly large increase in sales pipeline which ispromising for the current financial year. Client wins for Colline have includedbanks, asset management firms, hedge funds and energy companies. An ASP servicefor Colline has also successfully gone live. Drivers for Colline's growthinclude the need for many entities to free up credit lines, reduction ofeconomic capital and Basel II. We obtained a rating for the product in RiskMagazine. 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. There has been an excellent start to the new financial yearwith two important orders received in April. However, the delayed timing of somesignificant expected deals meant that the second and final earn-out arising fromlast August's acquisition and based on results to the end of March 2006 has notbeen achieved in full. STB Systems is the market leader for U.K. Bank Regulatory Reporting with over140 out of 350 banks in the U.K. using the STB-Reporter product for regulatoryreporting to the FSA. We believe that the high average level of customersatisfaction offers an excellent opportunity for the Group to expand itsbusiness with many of these clients. The firm's ability to offer global solutions has been greatly enhanced throughits 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. Independent Valuations The Group's Independent Valuation business, which from 2005 has operated as aseparate subsidiary, is progressing well with the full implementation of animportant contract with a large bank-owned administrator of hedge funds. Thereare a number of other opportunities in prospect. The Board believe there is aclear and important opportunity, in conjunction with partners, to move beyondthe provision of niche valuations to an industry solution for independentvaluations. This transition will require a high level of additional investmentand the Board believes it is prudent and appropriate that the IndependentValuation subsidiary attracts third party investors to assist with the fundingof this further expansion rather than for the Group itself to fund all thatinvestment. This process is underway and a few interested parties have beenidentified, although it is too early to give any guidance on whether that willlead to those parties actually investing. Personnel Following the acquisition of STB Systems, we were pleased to welcome MichaelThomas onto our board on successful completion of the first part of STB'searn-out. We welcome many excellent new colleagues into the Group, most from STBSystems and our Shanghai office. With the sale of the ValuSpread business we sadly had to say goodbye to a numberof talented former colleagues. We wish them well with Fitch Ratings. Investments Lombard Risk still holds a stake of 2.9% (5.6 million shares) in its formersubsidiary IDOX plc, which is quoted on AIM. Although that company has had adifficult past two months with a profit warning and the subsequent departure ofits Chief Executive, the board takes comfort from IDOX's strong cash positionand customer base among local authorities and believes it has soundfundamentals. The Board's position is that it will continue to review the levelof this holding based on investment considerations alone. IDOX is an example of a business successfully incubated by Lombard Risk and thenspun 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. As mentioned above,we recently announced that we were seeking external investors for ourIndependent Valuation business. 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. The Board is confident that market demand in our focus areas ofcollateral management, derivatives, regulation and compliance will continue togrow, as will the area of independent valuations. Backed up by the fast growthexperienced in the first three months of the new financial year, the Board isvery positive on revenue growth for FY 2007 and remains positive about theprospects for the Company over the next few years - subject to the Board'snormal caveat that there will inevitably be some volatility of earnings arisingfrom the exact timing of the Group's larger software licence deals. The outlook for the cost side is likely to be one of higher costs initiallyowing to the establishment of Shanghai, but followed by an extremely promisingoutlook for future cost containment as a progressively higher proportion ofsoftware development and other functions are carried out. Shanghai should allowrevenues to grow much faster than costs from now on. Our first full year as a quoted company was a significant year for the Group.The acquisition of STB Systems and the establishment and build-up of the newShanghai operation inevitably meant that many of our team had to put inconsiderable extra effort. I would like to thank all my colleagues, as well asour advisors, for their hard work and support. John WisbeyChairman and CEO Consolidated Profit & Loss Account Continuing operations Existing Operations* Acquisitions 2006 2005 Note £ £ £ £ Turnover 3,144,560 1,557,013 4,701,573 4,623,957External charges (93,168) (9,211) (102,379) (200,758)Gross profit 3,051,392 1,547,802 4,599,194 4,423,199 Staff costs (4,037,346) (1,076,200) (5,113,546) (3,910,659)Other operating charges (1,662,295) (555,895) (2,218,190) (1,295,293)Exceptional costs (21,469) - (21,469) (297,077) (5,721,110) (1,632,095) (7,353,205) (5,503,029)Operating Profit / (loss) - Before exceptional items and goodwill amortisation (2,648,249) 24,221 (2,624,028) (782,753) - Goodwill amortisation - (108,514) (108,514) - - Exceptional costs (21,469) - (21,469) (297,077) - Total operating loss (2,669,718) (84,293) (2,754,011) (1,079,830) Profit on disposal of current asset investment - 49,024Profit on disposal of business 5,971,447 - Interest receivable 43,296 6,526Interest payable (38,114) (109,788)Profit / (loss) on ordinary activities before taxation 3,222,618 (1,134,068) Tax on profit / (loss) on ordinary activities - -Profit / (loss) for the year transferred to / (from) 3,222,618 (1,134,068)reserves Earnings / (loss) per shareBasic (pence) 1 2.6 (1.2)Diluted (pence) 1 2.5 (1.2) * includes disposed ValuSpread business until August 2005 Consolidated Balance Sheet 2006 2005 Note £ £ Fixed assetsIntangible assets 3,712,680 -Tangible assets 344,387 285,061 4,057,067 285,061 Current assetsDebtors due within one year 1,126,024 1,198,451Debtors due after one year 77,898 -Investment 571,358 571,358Cash at bank and in hand 1,723,035 327,419 3,498,315 2,097,228 Creditors: Amounts falling due within one year (1,952,725) (1,306,486) Net current assets 1,545,590 790,742 Total assets less current liabilities 5,602,657 1,075,803 Creditors: Amounts falling due after one year (24,686) (219,126)Deferred income (1,999,996) (1,595,336)Net assets / (liabilities) 3,577,975 (738,659) Capital and reservesCalled up share capital 1,082,510 1,020,875Share premium account 2,415,110 2,415,110Revaluation reserve 170,957 170,957Other reserves 1,151,029 118,648Profit and loss account (1,241,631) (4,464,249)Shareholders' funds / (deficit) 2 3,577,975 (738,659) The financial statements were approved by the board on 4 July 2006 and signed onits behalf by: John WisbeyChairman & CEO Consolidated Cash Flow Statement 2006 2005 Note £ £ Net cash outflow from operating activities 3 (2,580,974) (1,322,630) Returns on investments & servicing of financeInterest received 43,296 6,526Interest paid (35,976) (108,719)Finance lease interest (2,138) (1,069)Net cash inflow / (outflow) from returns on investments and servicing of 5,182 (103,262)finance Acquisitions and DisposalsPurchase of subsidiary (1,382,033) -Net cash balances acquired within the subsidiary 31,002 -Disposal of Business 5,596,554 -Net cash inflow/(outflow) from acquisitions and disposals 4,245,523 - Capital expenditure & financial investmentPayments to acquire tangible fixed assets (259,604) (281,582)Purchase of current asset investment - (316,000)Disposal of current asset investment - 393,024Disposal of tangible fixed asset - 9,062Net cash inflow / (outflow) from capital expenditure and financial investment (259,604) (195,496) FinancingIssue of shares - 2,081,494Capital element of finance lease (14,511) (9,574)Net cash (outflow) / inflow from financing (14,511) 2,071,920 Increase in cash 4 1,395,616 450,532 1 EARNINGS PER SHARE The earnings per ordinary share is calculated by reference to the profitattributable to ordinary shareholders divided by the weighted average number ofshares in issue during each period, as follows: 2006 2005 £ £Profit / (loss) for the year 3,222,618 (1,134,068)Weighted average number of shares in issue 123,840,622 95,935,032Earnings / (loss) per share - basic (pence) 2.6 (1.2) Dilutive effect of share options 5,000,000 -Total 128,840,622 95,935,032Earnings / (loss) per share - diluted (pence) 2.5 (1.2) 2 Reconciliation of movement in CONSOLIDATED shareholders' FUNDS /(DEFICIT) 2006 2005 £ £Profit / (loss) for the financial year 3,222,618 (1,134,068)Foreign exchange reserve (38,286) (545)Issue of 10p Ordinary shares - 2,097Issue of 0.5p new Ordinary shares 61,635 150,897Premium on new Ordinary shares 1,070,667 2,210,764Share issue costs - (282,264) 4,316,634 946,881Shareholders' funds / (deficit) at 1 April (738,659) (1,685,540)Shareholders' funds / (deficit) at 31 March 3,577,975 (738,659) 3 Net cash outflow from operating activities 2006 2005 £ £Operating loss (2,754,011) (1,079,830)Depreciation 229,775 130,327Goodwill amortisation 108,514 -Decrease / (increase) in debtors 442,661 (289,506)(Decrease) / increase in creditors (607,913) (83,621)Net cash outflow from operating activities (2,580,974) (1,322,630) 4 Reconciliation of net cash flow to movement in net FUNDS 2006 2005 £ £Increase in cash in the year 1,395,616 450,532Cash outflow from finance leases 14,511 9,574Inception of finance leases - (49,372)Change in net funds resulting from cashflows 1,410,127 410,734Net funds / (debt) at 1 April 276,029 (134,705)Net funds at 31 March 1,686,156 276,029 5 Analysis of changes in net FUNDS 1 Apr 05 Cash flow Non cash 31 Mar 06 movements £ £ £ £Cash at bank and in hand 327,419 1,395,616 - 1,723,035Finance leases (51,390) 14,511 - (36,879) 276,029 1,410,127 - 1,686,156 6 BUSINESS DISPOSAL 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 £6.0m in cash plus afurther £466,000 of deferred income. As at 31 March 2006, £5.9m of theconsideration had been received less 5% placed in escrow and expenses paid.Included within the expenses arising from the disposal are bonuses, totalling£140,000, paid to two of the directors of Lombard Risk Management plc. 7 CASH BALANCES HELD IN ESCROW Included within the cash at bank and in hand balance is an amount of £295,000received 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 Groupon the first anniversary of the transaction date. Full receipt of this balanceis subject to certain clauses in the sale agreement not being breached and theBoard is confident that this amount will be received in full. 8 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: Provisional Book Value Adjustments Fair Value £ £ £Tangible assets 75,071 (45,574) 29,497Debtors 448,132 - 448,132Bank and cash 31,002 - 31,002Creditors (941,026) (374,465) (1,315,491)Total net liabilities (386,821) (420,039) (806,860)Goodwill 3,821,194 3,014,334 Satisfied by:Cash consideration 1,267,322Share consideration 632,301Deferred contingent consideration 1,000,000Expenses arising from acquisition 114,711 3,014,334 The fair value adjustment made to the assets and liabilities of the Company atthe date of acquisition relates to bringing depreciation rates into line withthose of the Group. The adjustment made to creditors is an alignment ofaccounting policies in respect of deferred income. 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. The first earnout consideration was met and a total of £500,000 was paid in shares. Theremaining £500,000 remains accrued for in full. The results of STB Systems Ltdhave been consolidated with effect from 1 September 2005. 9 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 2006 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 2006 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