The renaissance of compliance and collateral management software provider Lombard Risk Management PLC (LON:LRM) under new management is underway, judging by half-year results.
The company reported record first half revenue of £15.2mln in the six months to the end of September, up 41.2% from the previous year’s £10.8mln.
The order book of contracted revenue rose to £9.2mln from £6.8mln the year before, “so we’ve not just been pillaging our backlog of orders,” chief executive officer Alastair Brown told Proactive Investors.
Sales for the period were up 58% on the previous year, with software licence sales up 106%. The latter is an important metric, chief financial officer Nigel Gurney explained, because of the higher margins, "plus it means recurring revenue".
"Generating sustainable revenue is an important metric," Gurney said.
Annually recurring revenues for the half year totalled £6.1mln (2015: £5.0mln), representing 40.1% (2015: 46.3%) of total revenues.
Earnings before interest, tax, depreciation and amortisation (EBITDA) advanced to £1.5mln from £0.5mln the year before, but accounting for depreciation, amortisation and impairment adjustments meant the company made a small loss before tax of £113,000, though this was a significant improvement on the previous year’s loss of £1.76mln.
The company finished the reporting period with cash and cash equivalents of £6.87mln, up from £2.73mln a year earlier, having raised £8.3mln in the market earlier this year, and the plan is to continue to invest the money in development of the product lines; this should drive the top line higher but the investment will hit the bottom line for a while.
"With the increasing strength of our recurring revenues, an order book of £9.2mln and the transformation of the Lombard Risk organisation largely complete, the board faces the second half of the year with optimism. Whilst the Financial Services industry as a whole remains under pressure, the Governance, Risk and Compliance sector continues to experience strong growth and the company remains well placed to service all our clients,” CEO Alastair Brown told investors.
Addressing the topic of Brexit, and sterling’s collapse since the UK voted to exit the European Union, the firm noted that the Europe, Middle East and Africa (EMEA) region accounts for around half of Lombard’s revenues, but the split between euro and sterling-denominated business means that, globally, 58% of the group’s revenues are in currencies other than sterling, giving Lombard a natural hedge against the effect of the plunging pound.
“European clients, who paused to reflect post the referendum result, quickly resumed normal project activities, and much of our sales are driven by non-negotiable regulatory timetables. The rest of our business is driven by banks' desire to reduce operational costs and risks, and again these pressures are only amplified by anticipation of the impact of BREXIT on the European macro-economies. Were BREXIT to introduce more diversity into the regulatory landscape, we would of course be beneficiaries, but at this time we consider that to be unlikely,” the company told investors.
In an interview with Proactive Investors, Alastair Brown said the first half performance positioned the company well for the future.
He highlighted three operational achievements, the first of which was the launch of the cloud-based collateral management system, AgileCOLLATERAL, an “out of the box” product that would put Lombard’s flagship collateral management system within the reach of all buy-side market participants.
Meanwhile, development of the AgileREPORTER compliance product continues apace. The product is being offered as part of the analytics suite sold by database software giant Oracle, which is "a very important partnership for us", though plans are also in the pipeline to sell the product directly to North American customers.
“Five clients are now live with Oracle, and we’ve got a positive pipeline,” Brown revealed.
The third achievement was the impending opening next month of the company’s state-of-the-art software development facility in Birmingham.
That’s Birmingham, in the UK, not Birmingham, Alabama.
Dear old Brum has “a thriving fintech industry,” Brown said, and the company’s aim is to “become the tech employer of choice” in the region.
Market reaction to the results was extremely positive, with the shares up 21.6% at 8.82p towards the end of the morning trading session.
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