Lombard Risk Management reports 228% Net Income decline and 13.6 pp EBITDA Margin decline from 20.5% to 6.9%

26 May 2016 • About Lombard Risk Management ($LRM) • By InTwits

Lombard Risk Management reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Lombard Risk Management doesn't have a profitable business model yet: FY2016 ROIC is -12.0%
EBITDA Margin is declining: 6.9% in FY2016 vs. 20.5% in FY2015 vs. 23.9% in FY2012
EBITDA Margin is quite volatile: 6.9% in FY2016, 20.5% in FY2015, 29.3% in FY2014, 30.8% in FY2013, 23.9% in FY2012
Lombard Risk Management has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.7%. At the same time it's in pair with industry average of 1.9%.
CAPEX is quite volatile: 0.44 in FY2016, 0.37 in FY2015, 0.40 in FY2014, 0.21 in FY2013, 0.20 in FY2012
The company has unprofitable business model: ROIC is at -12.0%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Lombard Risk Management ($LRM) key annual financial indicators

mln. £	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	12.758	16.768	20.395	21.491	23.714	10.3%
Gross Profit	12.635	16.567	20.231	21.193	23.539	11.1%
SG&A				18.915	25.726	36.0%
EBITDA	3.045	5.172	5.971	4.406	1.628	-63.1%
Net Income	2.505	3.751	5.199	2.290	-2.935	-228.2%
Balance Sheet
Cash	0.128	1.874	2.929	2.241	3.342	49.1%
Short Term Debt	0.667	1.013	0.667	0.000	0.000
Long Term Debt	1.333	0.667	0.000	0.000	0.000
Cash flow
Capex	0.195	0.209	0.395	0.369	0.439	19.0%
Ratios
Revenue growth	8.1%	31.4%	21.6%	5.4%	10.3%
EBITDA growth	313.3%	69.9%	15.4%	-26.2%	-63.1%
Gross Margin	99.0%	98.8%	99.2%	98.6%	99.3%	0.6%
EBITDA Margin	23.9%	30.8%	29.3%	20.5%	6.9%	-13.6%
Net Income Margin	19.6%	22.4%	25.5%	10.7%	-12.4%	-23.0%
SG&A, % of revenue				88.0%	108.5%	20.5%
CAPEX, % of revenue	1.5%	1.2%	1.9%	1.7%	1.9%	0.1%
ROIC	51.4%	39.2%	30.2%	12.2%	-12.0%	-24.2%
ROE	62.8%	47.0%	36.1%	11.7%	-13.8%	-25.5%
Net Debt/EBITDA	0.6x	-0.0x	-0.4x	-0.5x	-2.1x	-1.5x

Revenue and profitability

The company's Revenue surged on 10.3% in FY2016. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 3.4 pp from 7.4% to 10.7% in FY2016.

Gross Margin increased slightly on 0.65 pp from 98.6% to 99.3% in FY2016. SG&A as a % of Revenue surged on 20.5 pp from 88.0% to 108% in FY2016.

Net Income marign dropped on 23.0 pp from 10.7% to -12.4% in FY2016.

Capital expenditures (CAPEX) and working capital investments

The company's CAPEX/Revenue was 1.9% in FY2016. CAPEX/Revenue increased slightly on 0.60 pp from 1.2% in FY2013 to 1.9% in FY2016. For the last three years the average CAPEX/Revenue was 1.8%.

Return on investment

The company operates at negative ROIC (-11.98%) and ROE (-13.81%). ROIC dropped on 24.2 pp from 12.2% to -12.0% in FY2016. ROE dropped on 25.5 pp from 11.7% to -13.8% in FY2016.

Leverage (Debt)

The company has no debt. Cash surged on 49.1% in FY2016.

Appendix 1: Peers in Software & Computer Services

Below you can find Lombard Risk Management benchmarking vs. other companies in Software & Computer Services industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Coms ($COMS)		46.8%	763.3%	110.4%	36.1%
Centralnic Group ($CNIC)	15.9%	4.0%	98.9%	71.3%
Proactis Holdings ($PHD)	20.4%	7.0%	26.2%	69.6%
Progility ($PGY)	4.6%			51.0%
Dotdigital Group ($DOTD)	6.6%	27.8%	32.9%	31.8%
Median (42 companies)	7.2%	5.7%	4.4%	3.6%	18.1%
Lombard Risk Management ($LRM)		31.4%	21.6%	5.4%	10.3%

Top companies by Gross margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Phoenix It Group ($PNX)	97.0%	97.2%	97.6%	97.9%
Wandisco ($WAND)	91.8%	80.3%	80.7%	93.2%
Netcall ($NET)	88.2%	89.7%	91.0%	90.9%
Idox ($IDOX)	90.4%	90.8%	89.4%	89.3%
Dotdigital Group ($DOTD)	94.0%	92.7%	90.5%	89.3%
Median (35 companies)	61.4%	62.0%	58.4%	60.3%	15.4%
Lombard Risk Management ($LRM)	99.0%	98.8%	99.2%	98.6%	99.3%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Mail.Ru Group Ltd ($61HE)	43.1%	47.4%	50.5%	34.6%
Dotdigital Group ($DOTD)	31.4%	39.4%	29.2%	32.0%
Idox ($IDOX)	30.9%	26.1%	26.0%	28.6%
Oxford Metrics ($OMG)	15.7%	6.0%	14.7%	28.4%
Centralnic Group ($CNIC)	38.7%	31.1%	24.8%	28.3%
Median (42 companies)	13.3%	12.8%	11.1%	10.6%	1.6%
Lombard Risk Management ($LRM)	23.9%	30.8%	29.3%	20.5%	6.9%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Coms ($COMS)	0.5%	0.9%	3.4%	7.5%	0.1%
Csf Group ($CSFG)	1.5%	4.0%	2.4%	7.1%
Nasstar ($NASA)	17.9%		2.1%	5.2%
Unisys Corp ($USY)	2.1%	2.5%	4.1%	5.0%
International Bus Mach Corp ($IBM)	3.9%	3.7%	4.0%	4.4%
Median (42 companies)	1.5%	1.6%	1.9%	1.1%	0.3%
Lombard Risk Management ($LRM)	1.5%	1.2%	1.9%	1.7%	1.9%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Triad Group ($TRD)	4.1%	-3.8%	24.5%	61.5%
Dotdigital Group ($DOTD)	26.4%	38.0%	28.5%	31.4%
International Bus Mach Corp ($IBM)	36.1%	31.0%	28.1%	25.7%
Instem ($INS)	20.6%	14.7%	10.9%	20.4%
Kalibrate Technologies ($KLBT)	12.5%	40.2%	29.2%	18.8%
Median (42 companies)	11.6%	11.4%	9.0%	4.3%	1.7%
Lombard Risk Management ($LRM)	51.4%	39.2%	30.2%	12.2%	-12.0%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Progility ($PGY)	2.0x		1.8x	12.8x
Parity Group ($PTY)	4.7x		4.9x	5.1x
Nasstar ($NASA)	-5.3x		0.0x	1.9x
Phoenix It Group ($PNX)	4.3x			1.9x
International Bus Mach Corp ($IBM)	0.9x	1.2x	1.4x	1.7x
Median (32 companies)	-0.5x	-0.5x	-0.2x	-0.4x	-5.3x
Lombard Risk Management ($LRM)	0.6x	-0.0x	-0.4x	-0.5x	-2.1x

Lombard Risk Management stock price chart

Lombard Risk Management financials

mln.	FY2010	FY2011	FY2012

Revenue	8.949	11.801	12.758
EBITDA	-1.298	0.737	3.045
Net income	-1.584	1.273	2.505
CAPEX	0.089	0.076	0.195
Debt	0.000	0.000	2.000
Cash	0.702	1.782	0.128

About Lombard Risk Management

Lombard Risk Management plc provides trading, valuation, and risk management systems; regulatory and transaction reporting systems; and compliance systems to the financial markets worldwide. The company operates in two segments, Regulatory Compliance Software, and Risk Management and Trading Software. Its products include COLLINE that provides collateral management, clearing, and inventory management and optimization solutions; REPORTER, a regulatory compliance solution for branch or head office with global coverage; REG-Reporter, a solution, which addresses the financial reporting requirements of banks and financial institutions; LISA, a scenario analysis and stress testing solution; and REFORM, a solution for pre-/post-trade lifecycle management and reporting. The company also offers ReporterMIS solution, which delivers visibility into various aspects of business; and OBERON, an integrated multi-currency system for the trading and risk management of interest rate derivatives and inflation derivatives, foreign exchange, money market, and fixed income portfolios. In addition, it provides FIRMAMENT, which is an integrated suite of trading and risk management applications that covers the life-cycle of tradable instrument types; and ComplianceASSESSOR, a Web-based compliance and audit application, which provides a means of assessing, evidencing, and recording compliance against an unlimited library of regulations. Further, the company offers implementation, deployment, consulting, support, and training services. It serves banks, fund administrators, investment firms, asset managers, energy companies, hedge funds, large corporations, and other firms operating in financial markets and the wider financial industry. The company has a strategic alliance with Broadridge Financial Solutions, Inc. to address changing industry needs in the collateral management sector. Lombard Risk Management plc was founded in 1989 and is headquartered in London, the United Kingdom.