Lombard Risk Management plc, a leading risk management, valuation and regulatory reporting software company, announces an update on trading prior to entering its close period ahead of the release of its final results for the year to 31 March 2006.
These are expected to be announced on 26 June 2006.
Towards the end of the financial year to 31 March 2006, and in the period since, the Group has traded very strongly with seven significant contracts concluded or orders received. These have an estimated aggregate value in their first year equivalent in total to just under 40% of the previous year's total revenues for the Group, of which only around £0.2m is recognizable in the year to 31 March 2006. Contract wins have been across all the firm's products with a particularly strong performance from Lombard Risk Systems, the Group's core risk management and valuation software business. Three of the contracts mentioned above were for Colline, the Group's collateral management product, while a fourth was for Colline in conjunction with two of the Group's other products. An ASP service for Colline has successfully gone live.
STB Systems, the Group's regulatory and compliance software business, has continued to make good progress with a growing sales pipeline driven by the Basel II regulatory changes. There has been an excellent start to the new financial year with two key orders received in the first half of April. However, as a consequence of the delayed timing of certain significant contracts, the second and final earn-out (of a maximum of 5m shares in the Group) is now not expected to be achieved in full. STB Systems is the market leader for U.K. Bank Regulatory Reporting with over 140 out of 350 banks in the U.K. using the STB-Reporter product for regulatory reporting to the Financial Services Authority.
The Group's Independent Valuation business, which since 2005 has operated as a separate subsidiary, is progressing well with the full implementation of a key contract with a large international banking group. The Group is currently in discussions on a number of other prospective orders for the Independent Valuation business. The Board believe there is a clear and important opportunity, in conjunction with partners, to move beyond the provision of niche valuations to an industry solution for independent valuations. This transition will require a high level of additional investment and the Board believes it is prudent and appropriate that the Independent Valuation subsidiary attracts third party investors to assist with the funding of this further expansion, rather than for the Group itself to fund all that investment.
Following the sale of ValuSpread in August 2005 for in excess of £6m, the Group has invested in a number of its core business areas in order to position them better, including major investment in Colline, Firmament, and the Independent Valuation business as well as in the establishment of a development centre in Shanghai. The recent contract wins for Colline are clear evidence that this investment is achieving returns. As a consequence of this investment, all of which has been expensed rather than capitalised, but taking into account the sale of the ValuSpread business, it is anticipated that the Group will report a significant profit before tax for the year to 31 March 2006, but that this will also be accompanied by a significant operating loss.
There is a strong pipeline for Colline as the Group enters the new financial year in addition to the assured revenues from the contract wins mentioned above. Furthermore, as a result of the Group's recurrent revenues and other identified opportunities for all the Group's products, the Board views the forthcoming year with confidence, subject to the potential volatility of earnings arising from the exact timing of the Group's larger software licence deals, for example from Colline. It is expected that even if revenues rise significantly it will be possible to contain costs through a progressive emphasis on developing software in Shanghai.