Lombard Risk Interim Report 2014

Managing collateralised trading.Enabling regulatory compliance.

Lombard Risk Management plc Interim report 2014

For over 25 years, Lombard Risk has delivered industry‑leading risk management and regulatory compliance solutions to the financial services industry and large corporations around the world.

More recently, Lombard Risk has expanded its portfolio of technology solutions to include collateral optimisation, compliance monitoring and advanced XBRL functionality.

Our strategy

InnovationIndustry-leading products provide risk and regulatory solutions for global financial services operations

ScalabilityAbility for solutions to be attractive to organisations of any size; significant data processing is not an issue

AgilityAdaptable and flexible business model to suit our clients’ requirements (e.g. term licence or annual subscription)

ExpertiseSignificant pool of business practitioners and experienced implementation consultants

1 What makes us different

2 Delivered through our product and services cycle

3 To a global market

Our model is to provide high quality technology solutions, either directly or through our partners; implement solutions, usually alongside the customer; provide on-going support; and maintain the product to a high technical specification and, where applicable, to satisfy up-to-date regulatory requirements.

All stages have opportunities for revenue growth: New and detailed regulations

continue to surface, e.g. FINREP, Asset Encumbrance

New products and modules to current products

Convergence of risk and regulation – increased value added from industry practitioners

Further revenue visibility backlog and recurring revenues continue

Lombard Risk delivers industry-leading risk management and regulatory compliance solutions to the financial services industry and large corporations around the world.

Our proven global solutions reduce the risk inherent in collateralised trading operations, enable firms to measure and manage liquidity and meet the demands of global regulators.

Our 300+ clients include over 30 of the world’s “Top 50” banks, nearly half of the banks operating in the UK (where our corporate headquarters is located), as well as industry-leading banking businesses, investment firms, asset managers, hedge funds, fund administrators and large corporations worldwide.

Our strategy has allowed us to create award‑winning global solutions.

01

Lombard Risk Management plc www.lombardrisk.com

Financial statements

Overview

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 of £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: 0.03p) per Ordinary Share

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

Current trading and outlook

In this report

Overview01 Highlights02 Chief Executive Officer’s statement

Financial statements08 Consolidated unaudited interim statement of comprehensive income09 Consolidated unaudited interim statement of financial position10 Consolidated unaudited interim statement of changes in equity12 Consolidated unaudited interim statement of cash flow13 Notes to the interim report20 Company information

Overview02


Chief Executive Officer’s statement

Recognised revenues achieved in the six months were our highest ever for the first half, up 27.7% on the same period last year.”

John WisbeyChief Executive Officer

SummaryIn the previous two financial years we achieved 45.6% and 35.6% respectively 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 30 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 30 September 2014 were also our highest ever at £22.4m against £16.4m in the 12 months to 30 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 30 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 30 September 2014 of £1.8m (2013: £0.8m). There has been a small net cash outflow since 31 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 to successfully transmit on the initial regulatory date with our XBRL software, although work is ongoing to automate the process fully for 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.

03



Overview

Clients and business wonWe 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 programme 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. Fifty 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 programme, we gained 62 new names for COREP, and 16 of these were direct gains from our traditional competitors. This has been a very successful programme.

We also won regulatory contracts for other reporting functionality in the UK, 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 products 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

Total revenue

£9.3m(2013: £7.3m)

COREP contracts signed

121(62 being new names)

Overview04


Chief Executive Officer’s statement continued

rate for all products remains very high at over 95% with any attrition mostly caused by bank branch closures outside our control.

Finance reviewRecognised 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 (2013: £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 capitalised 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 31 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 developmentDuring 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,

EBITDA

£0.8m(2013 restated: loss £0.02m)

Interim dividend

0.035p(2013: 0.03p)

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Overview

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 assetsIntellectual propertyThe Company has always focussed 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®, ReporterMIS, ComplianceASSESSOR™ 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.

BrandsOur 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 US, Canada and other jurisdictions. REG-Reporter® is the biggest brand used by foreign banks in the US, 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.

Overview06


Chief Executive Officer’s statement

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.

ComplianceASSESSOR™ – 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.

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

Partnership programmeOur 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 assessmentThe regulatory market background remains net favourable to the Company. We are about halfway 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.

Chief Executive Officer’s statement continued

Cash at period end

£2.2m(2013: £1.8m)

Reduction in debt to

£0.3m(2013: £1.0m)

07



Overview

Business improvement and our peopleWe are pleased to welcome Nigel Gurney as Chief Financial Officer and Board member as of 1 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.

DividendThe 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.

OutlookFor 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 30 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 also 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 programme has been successful. This is much appreciated as is the excellent support of our shareholders, bankers and advisers.

John WisbeyChief Executive Officer15 October 2014

Financial statements08


Notes to the interim report

For the six months ended 30 September 2014

Consolidated unaudited interim statement of comprehensive income


Note

UnauditedSix months

ended30 September

2014£000

UnauditedSix months

ended30 September

2013restated

£000

AuditedYear ended

31 March2014£000

Continuing operationsRevenue 9,269 7,256 20,395Cost of sales (114) (64) (164)

Gross profit 9,155 7,192 20,231Administrative expenses (8,374) (7,214) (14,260)

EBITDA 781 (22) 5,971Depreciation, amortisation and impairment (759) (475) (1,510)Net finance expense (9) (26) (42)

Profit / (loss) before taxation 13 (523) 4,419Taxation (charge) / credit 3 (24) (124) 735

Profit / (loss) for the period from continuing operations (11) (647) 5,154

Profit / (loss) for the period from continuing operations attributable to:Owners of the Parent 4 (633) 5,199Non-controlling interest (15) (14) (45)

(11) (647) 5,154

Other comprehensive incomeExchange differences on translating foreign operations 2 (109) (185)

Total comprehensive income for the period (9) (756) 4,969

Total comprehensive income attributable to:Owners of the Parent 6 (742) 5,014Non-controlling interest (15) (14) (45)

(9) (756) 4,969

Earnings / (loss) per shareBasic (pence) 2 0.00 (0.26) 2.07Diluted (pence) 2 0.00 (0.26) 2.04

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Note

UnauditedSix months

ended30 September

2014 £000

UnauditedSix months

ended30 September

2013restated

£000

AuditedYear ended

31 March2014£000

Non-current assetsProperty, plant and equipment 196 237 206Goodwill 4 5,769 5,792 5,751Other intangible assets 4 12,433 8,984 11,044Deferred tax asset 982 377 997

19,380 15,390 17,998

Current assetsTrade and other receivables 5,272 3,256 5,767Cash and cash equivalents 2,167 1,753 2,929

7,439 5,009 8,696

Total assets 26,819 20,399 26,694

Current liabilitiesBorrowings (333) (667) (667)Trade and other payables (2,573) (2,076) (2,695)Deferred income (5,788) (5,036) (5,171)

(8,694) (7,779) (8,533)

Long-term liabilitiesBorrowings — (333) —

— (333) —

Total liabilities (8,694) (8,112) (8,533)

Net assets 18,125 12,287 18,161

EquityShare capital 1,747 1,736 1,747Share premium account 9,375 9,261 9,375Foreign exchange reserves (279) (205) (281)Other reserves 1,622 1,521 1,537Retained profit 5,757 25 5,865

Equity attributable to owners of the Parent 18,222 12,338 18,243Non-controlling interest (97) (51) (82)

Total equity 18,125 12,287 18,161

Consolidated unaudited interim statement of financial position

As at 30 September 2014



Notes to the interim report continued


10Consolidated unaudited interim statement of changes in equity


Sharecapital£000

Sharepremiumaccount

£000

Foreignexchange

reserves£000

Otherreserves

£000

Profitand lossaccount

£000

Totalattributable

to theownersof the

Company£000

Non-controlling

interest£000

Totalequity£000

Balance at 1 April 2013 1,592 6,622 (96) 1,687 751 10,556 (37) 10,519

Issue of share capital 144 2,732 — — — 2,876 — 2,876Share issue costs — (93) — — — (93) — (93)Share-based payment credit — — — (36) — (36) — (36)Share options modification expense — — — (130) — (130) — (130)Dividends — — — — (93) (93) — (93)

Transaction with owners directly in equity 144 2,639 — (166) (93) 2,524 — 2,524

Loss for the period as previously reported — — — — (1,044) (1,044) (14) (1,058)Loss for the period restated — — — — (633) (633) (14) (647)Other comprehensive incomeExchange differences on translating foreign operations — — (109) — — (109) — (109)

Total comprehensive income for the period as previously reported — — (109) — (1,044) (1,153) (14) (1,167)Total comprehensive income for the period restated — — (109) — (633) (742) (14) (756)

Balance at 30 September 2013 as previously reported 1,736 9,261 (205) 1,521 (386) 11,927 (51) 11,876Balance at 30 September 2013 restated 1,736 9,261 (205) 1,521 25 12,338 (51) 12,287

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Sharecapital£000

Sharepremiumaccount

£000

Foreignexchange

reserves£000

Otherreserves

£000


£000

Totalattributable

to theownersof the

Company£000

Non-controlling

interest£000

Totalequity£000

Balance at 1 October 2013 1,736 9,261 (205) 1,521 25 12,338 (51) 12,287

Issue of share capital 11 114 — — — 125 — 125Share-based payment charge — — — 103 — 103 — 103Share option lapsed or exercised — — — (87) 87 — — —Dividends — — — — (79) (79) — (79)

Transaction with owners directly in equity 11 114 — 16 8 149 — 149

Profit for the period — — — — 5,832 5,832 (31) 5,801Other comprehensive incomeExchange differences on translating foreign operations — — (76) — — (76) — (76)

Total comprehensive income for the period — — (76) — 5,832 5,756 (31) 5,725

Balance at 31 March 2014 1,747 9,375 (281) 1,537 5,865 18,243 (82) 18,161

Sharecapital£000

Sharepremiumaccount

£000

Foreignexchange

reserves£000

Otherreserves

£000


£000

Totalattributable

to theownersof the

Company£000

Non-controlling

interest£000

Totalequity£000

Balance at 1 April 2014 1,747 9,375 (281) 1,537 5,865 18,243 (82) 18,161

Share-based payment charge — — — 92 — 92 — 92Share option lapsed or exercised — — — (7) 7 — — —Dividends — — — — (119) (119) — (119)

Transaction with owners directly in equity — — — 85 (112) (27) — (27)

Profit for the period — — — — 4 4 (15) (11)Other comprehensive incomeExchange differences on translating foreign operations — — 2 — — 2 — 2

Total comprehensive income for the period — — 2 — 4 6 (15) (9)

Balance at 30 September 2014 1,747 9,375 (279) 1,622 5,757 18,222 (97) 18,125





Consolidated unaudited interim statement of cash flow


UnauditedSix months

ended30 September

2014£000

UnauditedSix months

ended30 September

2013restated

£000

AuditedYear ended

31 March2014£000

Cash flows from operating activities(Loss) / profit for the period (11) (647) 5,154Tax charge 24 124 (735)Net finance expense 9 26 42

Operating profit / (loss) 22 (497) 4,461Adjustments for:Depreciation 98 94 284Amortisation and impairment 661 381 1,226Share-based payment charge / (credit) 92 (36) 67Decrease / (increase) in trade and other receivables 495 128 (2,383)(Decrease) / increase in trade and other payables (122) (147) 574Increase in deferred income 617 760 895Foreign exchange difference (34) (29) (17)

Cash generated by operations 1,829 654 5,107Tax (paid) / credit received (7) (5) 125

Net cash generated by operating activities 1,822 649 5,232

Cash flows from investing activitiesInterest received — — 2Purchase of property, plant and equipment and computer software (116) (330) (395)Capitalisation of development expenditure (2,005) (2,294) (5,333)

Net cash used in investing activities (2,121) (2,624) (5,726)

Cash flows from financing activitiesShares issued, net of issue costs — 2,783 2,908Share option modification expense payment — (130) (130)Repayment of loans (334) (680) (1,013)Interest paid (10) (26) (44)Dividends paid (119) (93) (172)

Net cash flow generated by financing activities (463) 1,854 1,549

Net (decrease) / increase in cash and cash equivalents (762) (121) 1,055Cash and cash equivalents at beginning of period 2,929 1,874 1,874

Cash and cash equivalents at end of period 2,167 1,753 2,929

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1. Basis of preparationThis 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 ongoing 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.

Notes to the interim report




2. Earnings per shareBasic 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.

UnauditedSix months ended

30 September2014

UnauditedSix months ended

30 September2013

restated

AuditedYear ended

31 March2014

Profit / (loss) for the period and basic and diluted earnings attributable to Ordinary Shareholders (£000) 4 (633) 5,199

Weighted average number of Ordinary Shares 263,366,260 243,500,627 251,717,005Earnings / (loss) per share (pence) 0.00 (0.26) 2.07

Effect of dilutive share options

Adjusted weighted average number of Ordinary Shares 266,477,120 244,947,633 254,768,319Diluted earnings / (loss) per share (pence) 0.00 (0.26) 2.04

3. TaxationThe 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.



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4. Intangible assets

GroupGoodwill

£000

Capitalised development

costs as previously

stated£000

Otherintangible

assets£000

Total as previously

stated£000

Capitalised development costs restated

£000

Total restated

£000

CostAt 1 April 2013 5,848 7,596 1,047 14,491 7,028 13,923Additions — 2,435 221 2,656 2,294 2,515Foreign exchange effect (56) — (32) (88) — (88)

At 30 September 2013 5,792 10,031 1,236 17,059 9,322 16,350

At 1 October 2013 5,792 10,031 1,236 17,059 9,322 16,350Additions — 2,898 (5) 2,893 3,039 3,034Foreign exchange effect (41) — (25) (66) — (66)

At 31 March 2014 5,751 12,929 1,206 19,886 12,361 19,318

At 1 April 2014 5,751 12,929 1,206 19,886 12,361 19,318Additions — 2,005 30 2,035 2,005 2,035Foreign exchange effect 18 — 11 29 — 29

At 30 September 2014 5,769 14,934 1,247 21,950 14,366 21,382

AmortisationAt 1 April 2013 — 1,315 460 1,775 738 1,198Provided in the period — 863 70 933 311 381Foreign exchange effect — — (5) (5) — (5)

At 30 September 2013 — 2,178 525 2,703 1,049 1,574

At 1 October 2013 — 2,178 525 2,703 1,049 1,574Provided in the period — 302 90 392 854 944Foreign exchange effect — — (4) (4) — (4)

At 31 March 2014 — 2,480 611 3,091 1,903 2,514

At 1 April 2014 — 2,480 611 3,091 1,903 2,514Provided in the period — 570 91 661 570 661Foreign exchange effect — — 5 5 — 5

At 30 September 2014 — 3,050 707 3,757 2,473 3,180

Net book valueAt 30 September 2014 5,769 11,884 540 18,193 11,893 18,202

At 31 March 2014 5,751 10,449 595 16,795 10,458 16,804

At 30 September 2013 5,792 7,853 711 14,356 8,273 14,776





4. Intangible assets continuedDuring 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 cash flows 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.

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

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.

Intangible assets

Group

Goodwilland otherintangible

assets£000

Capitalised development

costs as previously

stated£000

Total as previously

stated£000

Capitalised development costs restated

£000

Totalrestated

£000

CostAt 1 April 2011 3,910 — 3,910 — 3,910Additions 2,830 3,318 6,148 3,206 6,036Foreign exchange effect 36 — 36 — 36

At 31 March 2012 6,776 3,318 10,094 3,206 9,982

At 1 April 2012 6,776 3,318 10,094 3,206 9,982Additions 39 4,278 4,317 3,822 3,861Foreign exchange effect 80 — 80 — 80

At 31 March 2013 6,895 7,596 14,491 7,028 13,923

AmortisationAt 1 April 2011 266 — 266 — 266Provided in the year 73 287 360 163 236

At 31 March 2012 339 287 626 163 502

At 1 April 2012 339 287 626 163 502Provided in the year 114 1,028 1,142 575 689Foreign exchange effect 7 — 7 — 7

At 31 March 2013 460 1,315 1,775 738 1,198

Net book valueAt 31 March 2013 6,435 6,281 12,716 6,290 12,725

At 31 March 2012 6,437 3,031 9,468 3,043 9,480

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.

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Consolidated cash flow statementFor the year ended 31 March 2013

Year ended31 March 2012

as previouslystated£000


restated£000

Year ended31 March 2013 as previously

stated£000


restated£000

Cash flows from operating activitiesProfit for the period 2,505 2,517 3,714 3,711Tax charge / (credit) (18) (18) 182 182Finance income (2) (2) — —Finance expense 32 32 86 86

Operating profit 2,517 2,529 3,982 3,979Adjustments for:Depreciation 122 122 140 140Amortisation 360 236 1,142 689Share-based payment charge 21 21 2 2Decrease / (increase) in trade and other receivables (2,504) (2,504) 825 825(Decrease) / increase in trade and other payables 315 315 (114) (114)(Decrease) / increase in deferred income 1,018 1,018 (173) (173)Foreign exchange gains (84) (84) (49) (49)Other non-cash credit — — (51) (51)

Cash generated in operations 1,765 1,653 5,704 5,248Tax credit received 18 18 53 53

Net cash inflow from operating activities 1,783 1,671 5,757 5,301

Cash flows from investing activitiesInterest received 2 2 — —Purchase of property, plant and equipment and computer software (195) (195) (209) (209)Purchase of business (1,963) (1,963) (470) (470)Capitalisation of research and development costs (3,318) (3,206) (4,278) (3,822)

Net cash used in investing activities (5,474) (5,362) (4,957) (4,501)

Cash flows from financing activitiesInterest paid — — (86) (86)Loans from bank 2,000 2,000 329 329Loans and other consideration paid — — (667) (667)Shares issued, net of issue costs 140 140 1,509 1,509Dividend paid (103) (103) (139) (139)

Net cash generated by financing activities 2,037 2,037 946 946

Net increase / (decrease) in cash and cash equivalents (1,654) (1,654) 1,746 1,746Cash and cash equivalents at beginning of period 1,782 1,782 128 128

Cash and cash equivalents at end of period 128 128 1,874 1,874



Company information

Company registration number3224870

DirectorsPhilip CrawfordChairman

John WisbeyChief Executive Officer

Nigel GurneyChief Financial Officer

Nick DaviesChief Technology Officer

John McCormickSenior Non-executive Director

Steve RogersNon-executive Director

Company SecretaryLisa Tan

Registered office7th Floor Ludgate House 245 Blackfriars Road London SE1 9UF

Nominated adviser and brokerCharles Stanley Securities131 Finsbury Pavement London EC2A 1NT

AuditorGrant Thornton UK LLPGrant Thornton House Melton Street Euston Square London NW1 2EP

Corporate solicitorsMemery Crystal44 Southampton Buildings London WC2A 1AP

RegistrarsComputershare Investor Services PLCPO Box 859 The Pavilions Bridgwater Road Bristol BS99 1XZ

Lombard Risk Management plc7th Floor Ludgate House 245 Blackfriars Road London SE1 9UF UK

tel: +44 (0)20 7593 6700 fax: +44 (0)20 7593 6780 e: [email protected]

www.lombardrisk.com

Lombard Risk Interim Report 2014

Business

Transcript of Lombard Risk Interim Report 2014