Lombard Risk Interim Results for Six Months Ended 30 September 2012

7/31/2019 Lombard Risk Interim Results for Six Months Ended 30 September 2012

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News from Lombard Risk Page 1

PRESS RELEASELombard Risk

Interim results for the six monthsended 30 September 2012

LONDON, UK 24th October 2012:Lombard RiskManagement plc (LSE: LRM) ("Lombard

Risk"), a leading provider of integratedcollateral managementandliquidity, regulatory

(includingDodd-Frank and EMIR) andMIS reportingsolutions for the financial services

industry, is pleased to announce itsinterim resultsfor the six months ended 30 September

2012

The full RNS is on the London Stock Exchange:

http://www.londonstockexchange.com/exchange/news/market-news/market-news-

detail.html?announcementId=11372806

Highlights

Revenue up 20% on same period last year at 7.7m (2011: 6.4m)

EBITDA of 2.0m (2011: 1.9m)

EBITDA after fully expensing all development costs was 0.1m (2011: 0.6m) profit before taxof 1.3m (2011: 1.8m)

Cash at period end of 1.5m (2011: 1.3m) with 2.0m debt (2011: nil

Successful equity placing to raise 1.5m completed in June 2012

Investment in the development of COREP, COLLINE modules and REFORM

New transaction reporting platform, REFORM, launched and sold as the foundation ofsolutions to satisfy Dodd-Frank and EMIR transaction reporting requirements

Interim dividend of 0.025 pence (2011: 0.020 pence) per Ordinary Share to be paid on 16November to shareholders on the register as at 2 November 2012.

Current trading and outlook

Twenty COREP contracts signed to date for a mix of existing and new customers

Continuing trend towards greater regulation necessitating mandatory spend

Increase in reporting requirements around derivatives reform (e.g. Dodd-Frank and EMIR)creates opportunities to sell solutions using REFORM

Additional modules increase the breadth of COLLINE, including a CLEARING (CCP) modulewhich satisfies a mandatory requirement of many financial institutions

The Board is cautiously optimistic about the outlook and prospects of the business for thesecond half of the year
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Report ofPhilip Crawford, Non-executive Chairman

The fact that revenues have increased by 20%, despite the continuing uncertainty in themacroeconomic environment, is particularly encouraging as revenues are expected to be second halfweighted this year and the result is measured against a strong comparative. This has been achievedthrough organic growth as well as a contribution from the prior years acquisition.

The decision made nearly a year ago to invest in technology to satisfy market needs has started tobear fruit in sales but not so much as yet in revenue.

Our European Banking Authority Common Reporting solution has been purchased by twenty banks,being a mix of current customers and new. An initial version of the product has been developed andthe development team continues to make modifications in line with the regulators updates.

Towards the end of the half year we signed contracts for our regulatory solution for Dodd Frank andEMIR, culminating with a significant deal signed at the end of the half year, which has bolstered theCompanys increasing revenue backlog and positions us well for this regulatory regime.

These contracts have supported our judgment in identifying market opportunities. The funds raised

from institutional investors in the half year allowed development to accelerate and the sales effort tobe ramped up.

The momentum of regulatory initiatives and risk mitigation supports our confidence in our productdevelopment and market positioning strategies. The Board is quietly confident that the future will bringa sustained period of growth for Lombard Risk.

Chief Executive Officers statement

Summary

The half year to 30 September 2012 saw record revenues and 20% revenue growth over the same

period last year. Due to the timing of UK and other regulatory deadlines, and the basis on which weare required to recognise revenue in the first half, the business this year continues to be weighted tothe second half. We were nevertheless encouraged that our revenues in the first half were slightlyahead of our management forecast underpinning our budget for the full year. It is particularlyencouraging that this result was achieved despite recognising no revenue at all from a large Dodd-Frank/EMIR deal concluded at the very end of the period and which we announced on 4 October.

The highlight of the half year was the signing of contracts for the European Banking Au thoritysCOREP regulations, and as at last week we had already successfully contracted with twenty UKbanks of which three were won from our competitors. The COREP regulations are due to come intoforce in 2013 and most of the revenue from this programme has yet to be recognised. It now looksincreasingly likely that the EBAs FINREP regulations will also be introduced into the UK and thisgives us good visibility of new regulatory revenue into 2014 and beyond.

We continue to exercise tight cost control and maintain appropriate cash reserves. Following ourshare placing in June 2012, we are recruiting additional high quality senior management and salespersonnel. We have also continued to make significant further investment in software to ensure thatwe are well placed to take advantage of the new regulatory regimes.

The outlook remains promising, with a market environment favouring the Companys productpositioning in regulation and risk management despite a tough budgetary environment in the financialsector.
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Finance review

Revenue increased to a record 7.7m (2011: 6.4m) with licence revenue increasing by 6% to 3.5m(2011: 3.3m). Annually recurring revenues totalled 3.6m (2011: 2.6m), being 46% (2011: 41%) oftotal revenues.

Operating profit before depreciation and amortisation (EBITDA), increased to 2.0m (2011:

1.9m).

Cash at the end of the period was 1.5m (2011: 1.3m) with 2.0m debt (2011: Nil). The debt aroseas a result of the acquisition made in December 2011. The Company raised 1.4m (net) in the periodby issuing new shares and used 0.4m (2011: Nil) to service and repay debt and paid a dividend of0.1m (2011: 0.1m). In line with expectations, trade and other receivables reduced by 0.7m in thesix month period.

Capitalised development costs totalled 1.9m (2011: 1.3m), representing 70% (2011: 73%) of totalresearch and development costs. The increase reflects the drive to develop new products, including amodule for European Banking Authoritys Common Reporting (COREP) and REFORM. TheCOREP module has been sold to twenty customers to date and REFORM has been used as theunderlying technology in the Companys Dodd Frank and EMIR transactional reporting sales,including the significant contract announced on 4 October, for which no revenue has been recognisedto date.

Expansion of intangible assets

Intellectual Property

The Company has continued to focus on developing its own software products rather than selling theproducts of third parties. With significant investment over time in our products like REPORTER, REG-Reporter, COLLINE and OBERON, and more recently in REFORM, REPORTER MIS and othersoftware 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 ourdevelopment effort more.

Brands

Our main brands at present are:

REPORTER Regulatory reporting in multiple jurisdictions. REPORTER is the biggest market brandfor FSA and now EBA regulatory reporting in the UK, and an important brand in various Asian andEuropean countries as well as the USA.

REG-Reporter Regulatory reporting in the USA, Canada and other jurisdictions. REG-Reporter is

the biggest brand used by foreign banks in the United States with more clients than all ourinternational competitors products combined.

COLLINE Collateral management, Clearing and Optimisation for OTC Derivatives, Repo and Sec

Lending and Listed Derivatives. COLLINE is one of the top brands in these markets.

REFORM Pre and post trade solutions and transactional reporting for the derivatives reforminitiatives such as Dodd-Frank and EMIR. Other modules of the REFORM engine provide connectivityand message transformation, for example enabling COLLINE to connect to exchanges and tomessaging systems.

OBERON Financial instrument valuation and related risk reporting. OBERON has been a very

durable system over many years.
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REPORTER MIS Flexible web based reporting tool allowing reporting to be produced from, forexample, COLLINE in conjunction with another third party system.

Client base

We regard our client base of around 300 financial institutions including 30 of the top 50 banks in theworld as one of our most valuable assets, and in many cases we are seen as a trusted provider rather

than only as a vendor. Our rate of client loss for all of our products continues to be at a very low level,while we have gained a number of prestigious new clients in the period.

The acquisition of REG-Reporter from SOFGEN in late 2011 added 70 clients to our portfolio, some ofwho were already clients elsewhere, and made us the leading player in regulatory reporting amongforeign banks in the United States. This built on our existing position as the market leader inregulatory reporting in the UK and some other countries.

Investment in software product development

During the period we invested heavily in the development of our software product, primarily in theareas driven by regulation and by regulatory and market initiatives around derivatives reform. This

meant gearing ourselves up for the European Banking Authoritys COREP regulations and for theregulatory requirements of the Dodd-Frank and EMIR programs. While COREP has been developedas a new module of the existing REPORTER product, the other initiatives have been developedthrough our new REFORM product which has required appreciable expenditure. In addition, we havecontinued to invest in R&D for other products. For example for COLLINE we continued to develop ouroffering for Clearing and invested in ensuring that COLLINE is compliant with new Dodd-Frankregulations. We also enhanced COLLINE by delivering a superior module for Repos, and made goodprogress in building an API for COLLINE which allows COLLINE to be used as a web service.

We have over 150 staff in our development and testing centre in Shanghai. Having this capability hasallowed us to take on much more work than we could have done a few years ago.

Very little of our R&D is speculative. We have struck a prudent balance between innovation and other

investment required to take advantage of opportunities in our core regulatory and collateralbusinesses.

Driving profitable organic growth

The Company has continued its trend of double digit growth in the period, with revenues 20% higherthan the revenue number for the comparable period last year, making for a compound revenue growthrate over the last three years of 21% as against 8% in the previous three years. Even excluding theacquisition of REG-Reporter in December 2011, the organic compound revenue growth rate over thelast three years is 16%. To an extent this step up in growth is a reflection of how beneficial regulatorychange has been for the Company, but it also reflects the success of the product strategy and a moreeffective sales force. A particularly strong performance was recorded by the EMEA regulatory

business through sales of REPORTER for COREP.

We believe we have reached the point where the business is becoming highly scalable and where anincreasing proportion of incremental revenue will go straight to the bottom line. This clearly involves aconstant focus on efficiency and on ensuring that our growth comes from a small number of verysuccessful products rather than from many sub-scale products.

We expect to see the proportion of sales through alliance partners increase over the next few years,which in turn will add a level of scalability to the Company over and above the level of profit growthachievable through a direct sales force alone. We are already talking to a number of possible partnersfor different products in different geographies, and the scale of this has reached the point where wehave hired a senior person to act as our Alliances Director.
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We have excellent opportunities available to us and a strong foundation to execute from. Ourcustomer base of 300 financial institutions in regulation and risk is an impressive one, which on itsown gives us a very strong platform for growth. We have good recurrent revenues and furtherpredictable revenues from fixed-term licence renewals and contractual backlog. The next year has allthe makings of a very busy year for us, and we can see that carrying on for several years.

Market assessment

The regulatory market background remains favourable to the Company. We are less than half waythrough an increase in the depth and breadth of regulation that banks and financial institutions faceworldwide, and at the same time there is a major regulatory driven reform of the derivatives industryunderway through legislation like Dodd-Frank in the United States or EMIR in the European Unionand equivalents in other countries. While the macroeconomic situation is the worst for 80 years andthe unresolved issues of the Eurozone are matters of continuing concern which could affect the timingof deals, certainly for now we see those negative factors as being outweighed by the positive factorsof increased mandatory spend on regulation and regulatory driven change in the derivatives market.

Outlook

The Board remains cautiously optimistic about the prospects for the Company in the short to mediumterm and believes we are on track for the current year, with the obvious cautionary note that bigevents such as a meltdown in the Eurozone or a longer than expected postponement of Europeanregulatory deadlines could affect the timing of the Companys revenues.

I would like personally to thank the many staff in London, New York, Shanghai and elsewhere whohave really gone the extra mile for us in the last few months. It is much appreciated as is the excellentsupport of our shareholders, bankers and advisors.

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Lombard Risk Interim Results for Six Months Ended 30 September 2012

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