LOM: Four Made Redundant In Bermuda Office

Dear Shareholder,

The global economic picture remains very mixed; the Euro area continues to be a “slow motion train wreck” with all of southern Europe slumping into steep recession. The thus far relatively resilient economies of northern Europe are beginning to be negatively impacted by the turmoil in southern Europe. The situation in Europe will probably get worse and will likely lead to a rise in social unrest on that continent, which will not help in achieving a resolution. The US economy is continuing its recovery however the pace of that recovery has slowed somewhat over the last six months and the upcoming Presidential election and tax policy going forward is raising business uncertainty and creating growth headwinds. We are expecting US growth to accelerate in the last quarter of 2012 and into 2013. China has now conquered its inflation pressures and has switched to stimulating domestic growth. We feel that their stimulus efforts will be successful and the re-acceleration of Chinese growth will significantly contribute to overall global growth in 2013.

The Bermuda economic environment is very challenging. Wage costs, taxes and contributory cost associated with wages and health coverage are very high in Bermuda. With most of our international business competing in a global environment against other offshore financial centres we need to offer compelling reasons as to why the Bermuda jurisdiction is more attractive, better run, and more business friendly than our offshore competitors. These natural competitive pressures become more acute when the overall volume of business is not growing or actually declining as is happening in the global financial services sector.

For LOM business continues to be very tough. Very high levels of uncertainty as to whether the world is on the brink of sliding back into a global recession with price deflation, or conversely, about to resume growth with inflation risks have created an environment where clients have a powerful incentive to “wait and see”. This rational and understandable hesitation to engage in the market has led to a significant slowdown in broking activity in all markets and that has negatively impacted our revenues.

Success in our asset management division, where revenues and profits are continuing to show healthy growth, has been eclipsed by the weakness in our broking division where massive uncertainty and very weak junior markets have caused another year on year substantial decline in our brokerage revenue. This weakness in our broking divisions has caused a further review of our cost structure. Sadly, with employment costs being our major expense, we have been forced to reduce our staff by seven individuals, losing two through attrition and four through redundancy in our Bermuda office, and in our Bahamas office making one redundant and reducing hours worked for the remaining staff. We continue to explore every way to cut our cost while at the same time actively seeking new brokers, clients and revenue sources.

LOM posted a loss for the first half of 2012 of $269,566 versus a loss of $1,220 in the first half of 2011.

Revenues had the following year-on-year changes:

Broking fees fell 27% to $1.28 million (37% of revenues).
Management and advisory fee revenues rose 11% to $1,012,750 (29% of revenues).
Fees from corporate finance work rose 19% to $38,958 (1% of revenues).
Foreign Exchange revenues fell 45% to $330,497 (10% of revenues).
Net interest earnings fell 33% to $273,510 (8% of revenues).
Investment Services income fell 28% to $512,283 (15% of revenues).
Loss on securities held in inventory was $55,198
Costs for the group had the following year-on-year changes:

Operating costs, ex commission payments, were reduced 17%
Overall operating expenses fell 16%.
Employee expenses fell 2.1%.
On other financial measures:

LOM’s assets under administration were $621 million as of 30th June 2012 as compared to $681 million in assets at the end of 2011.
LOM remains in a strong financial position with net equity of $16.7 million and no debt.
LOM holds cash and equivalents of $2.74 million, representing 16% of net equity.
As of 30th June 2012 LOM’s book value was $2.72 per share.
The Board of Directors of LOM have decided not to pay a dividend given current business conditions.

Our current share price on the Bermuda Stock Exchange is $2.45 and our current market capitalization is $15.1 million.

The Board has given approval for LOM to continue to buy back shares for cancellation to a total outlay not exceeding 200,000 shares. Over the first half of 2012, the Company purchased for cancellation 200 shares at an average price of $2.50.

Scott Lines
CEO
LOM (Holdings) Limited.

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