LOM 2008 Half Year Financial Results
Hamilton, Bermuda - July 23, 2008 – It is no news to anyone that the global financial markets have suffered an extremely difficult first half of the year. The United States’ habit of loose lending policies over the past six years came home to roost with a vengeance that roiled the world’s financial markets and created the worst credit crunch in a generation. This credit contraction exterminated Bear Stearns, America’s fifth largest securities broker. The storm continues in the financial markets with both Fannie Mae and Freddie Mac, two US government created mortgage lenders, which are teetering on the brink of insolvency and require a government bailout, and the US’s fourth largest broker dealer, Lehman Brothers, is under severe pressure. Meanwhile, the share price of the US banking champion, Citigroup, is approaching its 1992 $11 low and General Motors is now officially denying it is contemplating bankruptcy protection. To add icing, many US regional banks are under significant pressure with one or more in danger of immediate collapse.
We have witnessed negative returns in all major stock markets so far this year and are now officially in a global bear market (with declines in excess of 20%).
Given this background, LOM has witnessed significantly lower transaction volumes and a consequent decline in revenues.
We have faced higher staff costs as we continue to add enhancements to the services we offer our customers. This meant additional staff in the areas of corporate finance and investment research. To compound the situation, we are in the middle of implementing our new client accounting system, CAMRA, along with a new market order entry system and suffering those associated costs.
With this increase in employee expense we have been unable to reduce our expenses to match our decline in revenues and as a result the group made almost no money in the first half of the year.
LOM’s first half net earnings for 2008 decreased to $47,806 or 1 cent per share versus $1,275,200 or 20 cents per share for the same period in 2007.
Revenues had the following year-on-year changes:
- Broking fees fell 29% to represent 48% of group revenues as the brokerage subsidiaries, like the industry, suffered from this bear market.
- Asset management revenues were unchanged.
- Fees realized from corporate finance work declined to almost nothing in the first half.
- Foreign Exchange revenues rose 5%.
- Net interest earnings declined 11% as customers reduced exposure and leverage.
- Revenues from proprietary trading decreased 72% to $131,980 as the group reduced activities in the period.
- Overall revenues for the Group fell 23%.
Costs for the group increased as follows:
- Operating costs for the Group, ex the commission payments that are directly related to brokerage revenue, fell 3%.
- Overall operating expenses fell 5%.
- Employee expenses rose 14.5% as the group has hired additional staff to prepare for future growth.
On other financial measures:
- LOM’s assets under administration declined very slightly to $976 million as of June 30, 2008.
- LOM remains in a strong financial position with net equity of $21.4 million and no debt.
- Our annualized return on equity was 0.5% during the first half of 2008.
- LOM holds cash and equivalents of $6.6 million, representing 31% of net equity.
- As of June 30, 2008 LOM's book value was $3.37 per share.
LOM paid its regular dividend of $0.07 per share to shareholders of record on the June 2, 2008.
Our current share price on the Bermuda Stock Exchange is $4.05.
LOM will continue to buy back shares for cancellation to a total outlay not exceeding $1,000,000. Over the first half of the year, the Company purchased for cancellation 69,500 shares.
Given conditions in the market and the normal summer slowdowns we expect that business will remain subdued over the third quarter. The ability of revenues to rebound in the 4th quarter of the year will depend mainly on developments during the rest of this summer. Our focus will remain on winning new customers and assets during the remainder of the year.
We would like to thank our customers very much for their continued support and our staff for all of the hard work and dedication they relentlessly exhibit in delivering excellent service and advice to our customers.
Scott Lines, CEO
LOM Holdings Limited
